1099 CONSULTANTS AND EMPLOYMENT
A 1099 consultant is an outside contractor who works under contract for a company. Running a 1099 consulting company means you receive annual tax forms from various contracts listing the amount of money they paid you that year. While your clients do not take taxes out of your pay, they do report your 1099 earnings to the IRS. Your clients are required to send you a 1099 when you earn $600 or more in a year.
Follow the Internal Revenue Service guidelines to define your relationship with your clients. As a 1099 consultant, you and your staff typically have written contracts with clients and freedom to work for other clients. While you may contract with just one company, the independent contractor relationship does not preclude you from working for other clients as well. You usually don’t get benefits when you work as a 1099 consultant, but you may merge with other freelance consultants to purchase discounted medical coverage.
As an independent contractor, it’s up to you to define the methods you utilize to complete your projects and contract obligations. It’s your responsibility to provide training and audit the work of your subcontractors. You decide when to work, what tools you’ll use and where to perform your duties. A 1099 worker is completely self-reliant. The only restraints you have in running your business are the final obligations you make to your clients and what agreements you make in your contracts with them.
In addition to completing the work, one of the most important aspects of running a 1099 consulting company is accurate record keeping. As a 1099 consultant, you are required to submit self-employment tax returns each year. Your income is based on the total number of 1099s you receive from clients. Expenses such as office supplies, office space, transportation and computers are your responsibility to claim as deductions. You should set aside money to pay annual taxes or send estimated quarterly payments to the IRS throughout the year. As a 1099 firm, you are required to provide your own subcontractors with 1099 forms when they earn more than $600 in one year. When you first hire consultants to subcontract work from you, have them fill out a W-9 tax form for your records. The W-9 provides you with all the necessary information you need to file 1099s. You can then use those payments as additional deductions on your own taxes.
The 1099 agreement, usually referred to as an outside contractor or freelance agreement, should clarify the extent of your relationship with clients. The agreement, or contract, defines the scope of the work you undertake, deadlines and quality assurance, and pay scale offered by your client. At the same time, you should develop a contract for subcontractors you may use to complete the work. As your 1099 consulting firm grows, you can increase your income by using more consultants to perform the duties of your contract with the end user. That way you can continue to be the lead consultant and sell your services to additional users.
PHONE 949-413-6535 WFB LEGAL CONSULTING, Inc.—Lawyer for Business– A BEST ASSET PROTECTION Services Group
There are specific federal, state and local requirements regarding equal opportunity employment, employee safety and health protection, taxes and insurance. These and other issues about administering employees are discussed below as a general reminder to employers of the importance of notifying and upholding employee rights—preferably by way of a detailed employee handbook.
EMPLOYEE RIGHTS: Complying with Equal Employment Opportunity Laws
Federal and state laws and regulations protect employee rights. Applicants and employees of most private employers, state and local governments, educational institutions, employment agencies and labor organizations are protected under the following federal laws:
Race, Color, Religion, Sex, National Origin
Title VII of the Civil Rights Act of 1964, as amended, prohibits discrimination in hiring, promotion, discharge, pay, fringe benefits, job training, classification, referral, and other aspects of employment, on the basis of race, color, religion, sex or national origin.
The Americans with Disabilities Act of 1990, as amended, protects qualified applicants and employees with disabilities from discrimination in hiring, promotion, discharge, pay, job training, fringe benefits, classification, referral, and other aspects of employment on the basis of a disability. The law also requires that covered entities provide qualified applicants and employees with disabilities with reasonable accommodations that do not impose undue hardship.
The Age Discrimination in Employment Act of 1967, as amended, protects applicants and employees 40 years of age or older from discrimination on the basis of age in hiring, promotion, discharge, compensation, terms, conditions or privileges of employment.
In addition to sex discrimination prohibited by Title VII of the Civil Rights Act, the Equal Pay Act of 1963, as amended, prohibits sex discrimination in payment of wages to women and men performing substantially equal work in the same establishment.
Retaliation against a person who files a charge of discrimination, participates in an investigation, or opposes an unlawful employment practice is prohibited by all of these federal laws.
The California Fair Employment and Housing Act of 1959 also protects employees against harassment or discrimination in employment because of sex, race, color, religious creed, national origin, sexual orientation, disability (mental and physical, including HIV and AIDS), medical condition, age, marital status, as well as family, medical care or pregnancy disability leave needs. Sexual harassment is defined as unsolicited and unwelcome sexual advances, requests for sexual favors, or other verbal, physical, or visual conduct of a sexual nature that occurs and creates an intimidating, hostile or otherwise offensive working environment.
The law provides for administrative fines and for remedies for individuals, which may include hiring, back pay, promotion, reinstatement, cease-and-desist orders, punitive damages, and damages for emotional distress.
AT-WILL EMPLOYMENT AND WRONGFUL TERMINATION
California’s Labor Code specifies that an employment relationship with no specified duration is presumed to be employment “at-will.” This means, at least in theory, that the employer or employee may terminate the employment relationship at any time, with or without cause. There are exceptions to the at-will rule created by statute, the courts and public policy.
Statutory exceptions include terminating an employee for reasons based on the discrimination laws discussed above; for participating in union activity; and for refusing to carry out an activity that violates the law.
An employer can potentially reduce exposure to wrongful discharge liability by emphasizing using an at-will language in all written and verbal communications with employees. This extends from job announcements and interviews to employee handbooks, training seminars and employee reviews. It is also advised to avoid references in all situations that indicate job security or permanence.
EMPLOYEE SAFETY AND HEALTH PROTECTION
California law provides job safety and health protection for workers under the Cal/OSHA program, sponsored by the California Department of Industrial Relations (DIR) and the Division of Occupational Safety and Health (DOSH). All employers and employees must comply with the rules and regulations enforced by DOSH/DIR to ensure work and workplaces are safe and healthful. Special rules apply in work that involves hazardous substances.
It is always wise to have a lawyer on your team that is knowledgeable about these laws and who can create the contracts all employers require to ensure compliance and liability protection.
WFB Legal Consulting, Inc.–A BEST ASSET PROTECTION Services Group–Lawyer for Business
Requests for leaves of absence rank among the most frequently encountered challenges faced by any human resources (HR) administrator. The federal Family and Medical Leave Act (FMLA) and the California Family Rights Act (CFRA) – applicable to employers with 50 or more employees – contain overlapping and sometimes conflicting employee rights and employer obligations regarding California family leave.
The FMLA and CFRA both require covered employers to provide time off for personal illness, to attend to the illness of a family member and in connection with the birth or adoption of a child. Though this sounds simple, FMLA and CFRA issues are among the most litigated of all employment law cases and can result in large liabilities. Specifically, Federal and California family and medical leave laws provide eligible employees with the equivalent of up to 12 weeks per year for:
- Bonding with a newborn, adopted child, or child placed for foster care
- Caring for a family member with a serious health condition
- The employee’s own serious health condition
- A qualifying exigency relating to a close family member’s military service (FMLA only)
According to the federal Family and Medical Leave Act, eligible employees can get up to 26 weeks per 12-month period to care for an ill or injured service members (FMLA only).
Family and medical leave laws also prohibit retaliation or discrimination against an employee for exercising rights under FMLA or CFRA, or for giving information or testimony about alleged violations of California or federal family and medical leave laws.
- Failing to grant family and medical leave as required by federal and state law.
COVERED EMPLOYERS UNDER FMLA AND CFRA
Family/medical leave laws cover private employers with 50 or more employees on the payroll during each of any 20 or more calendar weeks in the current calendar year or the preceding calendar year and all public employers, regardless of the number of employees. This includes employees on the payroll who received no compensation, part-time employees, commissioned employees and employees on leave who are expected to return to active employment. Employees on layoff do not count.
INTERACTION BETWEEN FEDERAL AND CALIFORNIA LAWS
An employee can take family and medical leave under several different circumstances. FMLA and CFRA contain similar provisions and generally run concurrently. However, there are some situations where the leave will be FMLA only or CFRA only. You should therefore familiarize yourself with the various circumstances for which an employee can take leave.
EMPLOYEE ELIGIBILITY FOR LEAVE
According to the CFRA, there are specific criteria for an employee to be eligible for California family and medical leave. An employee must have worked for a covered employer for at least 12 months and must have worked for 1,250 hours in the 12 months before the start of the leave. The employee must also work at a worksite where 50 or more employees are employed by the employer within 75 miles of that worksite.
DURATION AND TIMING OF FAMILY AND MEDICAL LEAVE
An employee may take up to 12 workweeks of family/medical leave in a 12-month period. He/she may take all 12 weeks at once, or may take leave in shorter increments of hours, days or weeks.
An employee may take up to 26 weeks per 12-month period to care for an ill or injured service member under the FMLA.
Employees can either take leave all at once or intermittently with a few restrictions.
If an employee takes intermittent or reduced schedule family/medical leave, you can require the employee to temporarily transfer to a position better suited to that schedule. However, the alternative position must have equivalent pay and benefits.
LEAVE PERIOD CALCULATION
“Twelve weeks” means the equivalent of 12 normally scheduled workweeks. For eligible employees working more or less than five days a week or working alternative work schedules, the number of working days constituting 12 weeks is calculated on a pro rata or proportional basis. You can choose one of four specific methods to determine the 12-month period in which the 12 workweeks of leave entitlement occur.
You may require medical certification for an employee taking family/medical leave for his/her own serious illness or to care of a family member (baby-bonding time does not count). Keep in mind that medical privacy laws limit the type of information you may require on such certification.
- Common Mistake – Not understanding the difference between a “serious health condition” and a “common ailment.”
- “Serious Health Condition” Defined – A “serious health condition” is an illness, injury, impairment, or physical or mental condition that involves at least one of several criteria.
NOTICE REQUIREMENTS FOR EMPLOYER AND EMPLOYEE
Both California family/medical leave and federal family/medical leave laws require employers to post specific notices for employees explaining their family leave rights.
PAY AND BENEFITS
Family/medical leave is generally unpaid, though employees have certain rights to substitute accrued paid sick or vacation leave for the otherwise unpaid time. Employees who are enrolled in your health insurance benefits are entitled to continue receiving this benefit during their family medical leave. There are other insurance benefits around family/medical leave you’ll want to be aware of, including retirement and pension benefits.
RIGHT TO REINSTATEMENT AFTER LEAVE
When you grant an employee’s family/medical leave request you must guarantee to reinstate the employee to the same or a comparable position. Only under very limited circumstances can you refuse to honor the reinstatement guarantee.
Employment in a “comparable position” means employment in a position virtually identical to the employee’s original position in terms of pay, benefits and working conditions, including privileges, fringe benefits and status. It must involve the same or substantially similar duties and responsibilities, which must entail substantially equivalent skill, effort, responsibility and authority. It must be performed at the same or a geographically close worksite from where the employee previously was employed. It ordinarily means the same shift or the same or an equivalent work schedule.
REFUSING REINSTATEMENT ENTIRELY
Though an employee has the right to return to the position held before taking a family/medical leave, this right is not absolute.
PENALTIES FOR FAMILY AND MEDICAL LEAVE VIOLATIONS
Violating family and medical leave laws subjects you to a civil lawsuit or administrative proceeding, and supervisors may be personally liable.
COMPANY FAMILY AND MEDICAL LEAVE POLICY
If you are a covered employer, you must have a family and medical leave policy, which should include the required policy specifications.
WFB Legal Consulting, Inc.–A BEST ASSET PROTECTION Services Group–Lawyer for Business
Contribution by: James Baker
OVERVIEW OF CALIFORNIA’S FAIR EMPLOYMENT AND HOUSING ACT ANTI-DISCRIMINATION PROVISIONS (FEHA)
California Government Code section 12940(a) prohibits discrimination in hiring practices or treatment in the workplace based upon: “race, religious creed, color, national origin, ancestry, physical disability, mental disability, medical condition, genetic information, marital status, sex, gender, gender identity, gender expression, age, or sexual orientation of any person.” In theory, discrimination in the work place is easy to allege: “the employer simply treats some people less favorably than others because of their race, color, religion, sex or national origin.” Mixon v. Fair Employment and Housing Com. 192 Cal.App.3d 1306, 1317 (1987). This, however, downplays the importance of a causal connection between the injury suffered and the alleged discrimination.
In order to make a claim under the FEHA, you have to be able to demonstrate that there is a causal relationship between an unlawfully motivated employment decision (i.e., discrimination) or workplace policy and the harm that you have suffered. For example, being repeatedly bypassed for a promotion you were qualified for on the basis of race and a showing that this discriminatory practice has caused you financial loss in the form of lost wages and benefits. This would be an injury for which you can recover money damages and other relief.
By contrast, being suspicious that your boss is a racist without suffering some sort of injury is not something you can recover for, no matter how much your gut instinct may be correct. Unfortunately, the law is not concerned with truth so much as it is concerned with objective evidence of discrimination. This means that, absent some evidence to indicate an unlawful discriminatory motive, your employer is generally free to be cruel, unjust, unfair, and unreasonable. Below are the two methods for demonstrating such an unlawful motive, either of which is sufficient to convert an otherwise legal employment decision into a legal claim for discrimination that is worth pursuing.
- DISPARATE TREATMENT VERSUS DISPARATE IMPACT:
There are two methods for demonstrating that an employer harbors an unlawful discriminatory motive: (1) Disparate Treatment; and (2) Disparate Impact. The facts which must be proven to demonstrate discrimination vary depending on which of these theories the employee pursues.
An employee alleging disparate treatment must demonstrate that:
- The defendant was an employer;
- The plaintiff either was an employee of the defendant or had applied to a position offered by the defendant
- That the defendant either
- Fired or refused to hire the plaintiff;
- Subjected the plaintiff to an adverse employment action (an “adverse employment” action is any action which “materially and adversely affects the terms and conditions of employment” and includes things such as failure to hire, failure to promote, formal disciplinary action, demotion, suspension, unpaid administrative leave, and termination); or
- The plaintiff was constructively discharged (a “constructive discharge” occurs when an employer makes continued employment so difficult as to constitute a coerced resignation)
- The plaintiff’s protected classification – such as race, gender, or age – was a motivating reason for the adverse employment action;
- That the plaintiff was harmed; and
- That the defendant/employer’s conduct was a substantial factor in causing that harm.
Basically, this means that you must have suffered a harm that was substantially caused by your employer or some practice conducted by your employer.
Disparate impact cases, by contrast, allege that a practice that is not illegitimate on its face is merely a cover for a subtler form of discrimination. The distinction between the two concepts was outlined in Griggs v. Duke Power Co. (1977) 401 U.S. 424. In that case, it was determined that an employer’s requirement of a literacy test and high school diploma in order to be promoted to certain positions, while not discriminatory on its face, could form the basis for a racial discrimination claim where it was found to have a discriminatory impact. The intention of Title VII was to remove illegitimate barriers when they operate to discriminate on the basis of “racial or other impermissible classification,” whether such barriers are formally/explicitly unfair, or if they simply operate in such a way that leads to discrimination.
Under Griggs, the employer was forced to demonstrate the additional requirement of a high school diploma and a literacy test were substantially related to improving or correcting some deficiency in job performance in order to be legitimate. Where employees holding that position without the proscribed qualifications had performed satisfactorily, and the employer failed to show that the literacy test and high school diploma were in any way indicative of improved performance beyond a claim of “overall quality,” such additional qualifications could be found to be unlawfully discriminatory. A viable discrimination claim was thereby made.
Disparate impact cases generally proceed with statistical evidence demonstrating that an employer’s policies or practices have led to a statistically significant adverse impact on members of a protected class. Thus, for example, a fire department’s requirement that its employees be able to carry a 250-pound dummy for a mile will likely have a statistically disparate impact on female applicants for employment. Once this is proven, the burden shifts to the employer to establish a legitimate reason for the 250-pound requirement, as described in the next section, so as to avoid being held liable for unlawful discrimination.
- THE SHIFTING BURDEN OF PROOF IN EMPLOYMENT DISCRIMINATION CASES: WHAT YOU WILL NEED TO PROVE OVER THE COURSE OF YOUR CASE
Employment discrimination cases progress in a way that involves “burden-shifting,” where different parties bear the burden of proof on different issues. In order to determine whether or not an employee has a viable discrimination case, it is helpful to look at a couple of the foundational cases for claims brought under the Fair Employment and Housing Act (“FEHA,” California Government Code section 12900 et seq.). In California, there are three steps wherein the burden of proof starts with the employee, shifts to the employer, and ends with rebuttal by the employee.
(1) The basic evidentiary burden for a discrimination case was outlined in McDonnell Douglas Corp. v. Green (1973) 411 U.S. 792. The guidelines are very similar to the elements necessary to make a disparate treatment claim outlined above. Employees alleging discrimination have the burden to prove that they:
- Belong to the protected class of individuals;
- Were subjected to an adverse employment action;
- The adverse employment action was motivated by the protected classification; and
- The employee was harmed by the adverse employment action.
Often it is not necessary to prove that one indisputably belongs to a protected class, but merely that one is perceived as (and discriminated against because of) belonging to that class. “While the elements of a plaintiff’s prima facie case can vary considerably, generally an employee need only offer sufficient circumstantial evidence to give rise to a reasonable inference of discrimination. Once this much has been established, the burden of proof shifts to the employer to provide a legitimate non-discriminatory reason for” the adverse employment action. Sandell v. Taylor-Listug, Inc. 188 Cal. App. 4th 297, 310 (2010). So long as the injury you have suffered is due to being perceived as holding the status that was the basis of employer discrimination, you are protected by the FEHA.
(2) Once the complainant establishes a prima facie case, the defendant employer has the burden of proving that there was a legitimate reason for the adverse treatment of the plaintiff. The best way for them to do this is to show that the complainant does not meet some bona fide occupational qualification that another applicant has, that the employee has violated some legitimate work rules or standards of conduct warranting discharge, or that the employer otherwise had a legitimate business need for the adverse action taken. If the employer meets this burden, the complainant has an opportunity to argue that this excuse does not pass the test from Griggs and is, in fact, a cover for a discriminatory practice. In McDonnell Douglas Corp., the non-discriminatory excuse provided by the employer for not rehiring the employee alleging racial discrimination was that the employee had engaged in unlawful conduct against the company.
(3) One way for that employee to dispute the legitimacy of the excuse would be to show that white employees who had engaged in the same activities were rehired, or were not initially fired.
The legitimacy of an employer’s excuse or hiring decision is decided using the reasonable person standard; for example, where a finder of fact can see that the plaintiff was more qualified than the individual hired, and the only apparent difference between the two applicants is the plaintiff’s protected status, then a reasonable inference of discrimination can be made. Reeves v. MV Transportation, Inc. 186 Cal. App. 4th 666, 674–675 (2010). Such inferences need not always be so obvious as to “jump off the page,” but there must be some substantial disparity between the two qualifications that lead to a reasonable belief that the deciding factor was the protected status of the complainant, rather than an innocent judgment call.
3. MEETING DEADLINES: FILING AN ADMINISTRATIVE COMPLAINT WITHIN ONE YEAR OF THE DISCRIMINATION
In order to pursue civil litigation under the FEHA, a complainant must file an appropriate administrative complaint within one year of the unlawful activity’s occurrence. If the complaint is against a government entity or a Union contract is involved, the deadlines can be even shorter. Because of the nuance involved in determining the statute of limitations, employees with potential claims should consult with an employment lawyer as soon as possible after the discrimination occurs.
Utilizing the basic one year deadline, however, an employee “must [within one year] exhaust the administrative remedy provided by the statute by filing a complaint with the Department of Fair Employment and Housing and must obtain from the Department a notice of right to sue in order to be entitled to file a civil action in court.” Morgan v. Regents of University of California 88 Cal. App. 4th 52, 63 (2000).
There is an exception to this rule where the unlawful practice was ongoing, or was such that it was not discoverable within one year. In such cases it is helpful to establish that current practice is reasonably similar to a previous discriminatory practice, was a reasonably frequent sequence of discriminatory behavior, or took time to acquire a degree of permanence. An employee suspicious that they are suffering from a discriminatory practice should be able to show at least one act which occurred within one year of filing, and it would help to show that this act was part of an ongoing company-wide policy, or part of a sequence of unlawful actions taken against him or her. Meeting with an attorney is the best way to gain a firm grasp on what specific deadlines you must meet to ensure that your claim is not dismissed based on a failure to adhere to the statute of limitations for claims made under the FEHA.
WFB Legal Consulting, Inc.–A BEST ASSET PROTECTION Services Group–Lawyer for Business
| Effective January 1, 2013, California law provides that current and former employees (or a representative) have the right to inspect and receive a copy of the personnel files and records that relate to the employee’s performance or to any grievance concerning the employee. (Labor Code Section 1198.5) Inspections must be allowed at reasonable times and intervals, but not later than 30 calendar days from the date the employer receives a written request. Upon a written request from a current or former employee, or a representative, the employer shall provide a copy of the personnel records, at a charge not to exceed the actual cost of reproduction, not less than 30 calendar days from the date the employer receives the request.
To facilitate the inspection, employers shall do all of the following: (1) maintain a copy of each employee’s personnel records for a period of not less than three years after termination of employment, (2) make a current employee’s personnel records available for inspection, and if requested by the employee or representative, provide a copy at the place where the employee reports to work, or at another location agreeable to the employer and the requester. If the employee is required to inspect or receive a copy at a location other than the place where he or she reports to work, no loss of compensation to the employee is permitted, (3) make a former employee’s personnel records available for inspection, and if requested by the employee or representative, provide a copy at the location where the employer stores the records, unless the parties mutually agree in writing to a different location.
The employer is not required to make those personnel records or a copy available at a time when the employee is actually required to render service to the employer, if the requester is the employee. An employer is required to comply with only one request per year by a former employee to inspect or receive a copy of his or her personnel records. A former employee may receive a copy by mail if he or she reimburses the employer for actual postal expenses.
An employer is not required to comply with more than 50 requests to inspect and receive a copy of personnel records filed by a representative or representatives of employees in one calendar month. The employer may take reasonable steps to verify the identity of a current or former employee or an authorized representative. Prior to making records available for inspection or providing a copy of those records, the employer may redact the name of any nonsupervisory employee.
If a former employee seeking to inspect his or her personnel records was terminated for a violation of law, or an employment-related policy, involving harassment or workplace violence, the employer may comply with the request by doing one of the following: (1) making the personnel records available to the former employee for inspection at a location other than the workplace that is within a reasonable driving distance of the former employee’s residence, (2) providing a copy of the personnel records by mail.
If an employer fails to permit a current employee, former employee, or representative to inspect or copy personnel records within the times specified, or times agreed to by mutual agreement, the current employee, former employee, or the Labor Commissioner may recover a penalty of $750.00 from the employer. A current or former employee may also bring an action for injunctive relief to obtain compliance, and may recover costs and reasonable attorney’s fees in such an action through the court process.
The right to inspect personnel files and records does not apply to records relating to the investigation of a possible criminal offense, letters of reference, or ratings, reports, or records that (a) were obtained prior to the employee’s employment, (b) were prepared by identifiable examination committee members, or (c) were obtained in connection with a promotional exam.
The right to inspect personnel files does not apply to an employee covered by a valid collective bargaining agreement if the agreement expressly provides for all of the following: (1) the wages, hours of work, and working conditions of employees, (2) a procedure for the inspection and copying of personnel records, (3) premium wage rates for all overtime hours worked, (4) a regular rate of pay of not less than 30 percent more than the state minimum wage rate.
Employers are required to give an employee or job applicant, upon request, a copy of any instrument that the employee or applicant has signed relating to the obtaining or holding of employment. Labor Code Section 432
Employers are required to permit current and former employees to inspect or copy payroll records pertaining to that current or former employee. Labor Code Section 226(b) An employer who receives a written or oral request from a current or former employee to inspect or copy his or her payroll records shall comply with the request as soon as practicable, but no later than 21 calendar days from the date of the request. Failure by an employer to permit a current or former employee to inspect or copy his or her payroll records within the 21-calendar day period entitles the current or former employee to recover a penalty from the employer in a civil action before a court of competent jurisdiction. Labor Code Section 226, subdivisions (c) and (f)
Employers are required to keep accurate payroll records on each employee, and such records must be made readily available for inspection by the employee upon reasonable request. Additionally, when a piece rate or incentive plan, such as a commission plan, is in operation, piece rates or an explanation of the incentive plan formula shall be provided to employees. The employer must maintain accurate production records. IWC Orders 1 through 15, Section 7, and IWC Order 16, Section 6.
All employers must provide employees or their representative(s) access to accurate records of employee exposure to potentially toxic materials or harmful physical agents. Labor Code Section 6408(d)
Employment records may be subpoenaed from a current or former employer by a third party. If employment records are subpoenaed, the employee must be notified and has the right to object to production of the records. Code of Civil Procedure Section 1985.6(e)
WFB Legal Consulting, Inc.–A BEST ASSET PROTECTION Services Group–Lawyer for Business
The Genetic Information Non-Discrimination Act (GINA) got lots of media attention when it first took effect in 2009. The U.S. Equal Employment Opportunity Commission has announced that it filed and settled its first lawsuit under GINA, and that it filed its first GINA class-action suit. In both cases, employers conducted pre-employment medical exams that the Equal Employment Opportunity Commission (EEOC) said were illegal. While the exams themselves may not have been illegal, the employers went wrong when they required the job applicants to fill out detailed family medical histories for these exams. However, there are ways that your potential employer’s examination may violate your workplace rights under GINA. It is illegal for employers to discriminate against employees and applicants because of genetic diseases. That means employers can’t use genetic information in making employment decisions. Employers aren’t allowed to request, require or purchase genetic information about employees or applicants.
In a case against Fabricut, Inc. that settled, the company made a conditional job offer to the employee. The offer was contingent on her passing a pre-employment drug test and physical. When the employee went for her physical exam, “she was required to fill out a questionnaire and disclose the existence of numerous separately listed disorders in her family medical history. The questionnaire asked about the existence of heart disease, hypertension, cancer, tuberculosis, diabetes, arthritis and ‘mental disorders’ in her family.” This sounds exactly like every doctor’s questionnaire. However, in this case, it was for an employer, and it was none of the employer’s business. Had the employer conducted the exam without seeking this information, they might not have violated GINA.
In a class action against The Founders Pavilion, Inc., the employer demanded family medical histories for both pre-employment physical examinations and annual employee physical exams. Employers need to wake up to GINA’s requirements and tell physicians who conduct pre-employment physicals and annual physicals that they must stop requesting family histories, or they risk violating the law.
The Americans With Disabilities Act (ADA) makes it illegal for employers to discriminate against applicants and employees based on disabilities. For applicants, employers are not permitted to ask about disabilities at all until they make a conditional offer of employment. They may provide a list of job duties and ask if the applicant can perform all the job requirements.
They may only require drug tests or physical examinations if they are required of all applicants for the same job, once an offer is made. If the applicant is rejected due to a disability, the employer must show that the requirement is job-related, consistent with business necessity and — if safety is the issue — that the applicant poses a “direct threat” to his/herself or others, and that the risk can’t be reduced with a reasonable accommodation. For example, if an applicant has macular degeneration and they are applying to be a SWAT sharpshooter, then the employer can probably exclude them. If they are a typist, probably not, since the condition can be accommodated with a CCTV or other device.
Going back to the two cases, both employers were found to have discriminated based upon disabilities. In the Fabricut case, the company rescinded its job offer because it believed, based on the medical examination, that the applicant had carpal-tunnel syndrome (despite the fact that her doctor said she didn’t). Employers are not allowed to discriminate against you because the employer regards you as disabled. By withdrawing the job offer based on a disability that they thought the applicant had, even though they got it wrong, the company violated the ADA.
In the Founders case, the EEOC said that the employer refused to accommodate a disabled employee during a probationary period, and that it fired two other employees because of perceived disabilities. If proven true, this will also be a violation of the ADA as well as GINA. That’s still not all that the EEOC says the company did wrong however.
Pregnancy Discrimination: If a pre-employment examination discloses that an applicant is pregnant, the employer violates the Pregnancy Discrimination Act, (which added pregnancy to the prohibition in Title VII Federal Law against sex discrimination), if they refuse to hire the pregnant applicant. In the Founders case, the EEOC said that the company refused to hire, or fired, three women because they were pregnant.
Age Discrimination: While this issue didn’t arise in either of these two cases, if an employer finds out that you are older than they thought when you submit to a pre-employment physical exam, the employer may violate the Age Discrimination in Employment Act if it rescinds your job offer due to your age.
Other Discrimination: If a physical examination reveals your race, national origin, religion or other information about a protected category that the employer didn’t know about before it made the offer, then rescinding the offer based on that protected category would violate Title VII, the Federal Law against discrimination.
Most of these laws apply only if your employer has 15 or more employees. The federal age discrimination law applies only if your employer has 20 or more employees. Your state, county or city may have a statute or ordinance that makes similar discrimination illegal for those employers with a smaller number of workers. For example, in CA it requires only 5 or more employees to allege discrimination. If you believe that you’ve been the victim of discrimination that violates federal and/or state law, your first step is to file a charge of discrimination with the EEOC or the CA Department of Fair Employment and Housing (DFEH). This is a requirement before you are allowed to sue.
EMPLOYERS MUST CONDUCT INVESTIGATIONS INTO HARASSMENT CLAIMS
Here are some common sense and legally-required steps an employer must take when an employee complains of harassment in the workplace.
1. Employers have a duty to conduct investigations.
Employers can be liable under California’s Fair Employment and Housing Act (FEHA) if they “fail to take all reasonable steps necessary to prevent discrimination and harassment from occurring.” In addition, Government Code section 12940, subdivision (k), requires employers to take “all reasonable steps to prevent harassment from occurring.” If the employer fails to take the preventative measures, they can be held liable for the harassment between co-workers. If the harassment occurs by a manager, the company is strictly liable for the harassment. If the harassment occurred by a non-management employee, the employer is only liable if it does not take immediate and appropriate corrective action to stop the harassment once it learns about the harassment.
2. The employer may have to take action before conducting the investigation.
Based on the allegations and the facts of the case, as a precautionary measure, the employer should analyze if any immediate steps need to be taken. The EEOC set forth examples of precautionary steps that may be necessary include: “scheduling changes so as to avoid contact between the parties; transferring the alleged harasser; or placing the alleged harasser on non-disciplinary leave with pay pending the conclusion of the investigation.” However, the employer needs to ensure that the complainant “should not be involuntarily transferred or otherwise burdened, since such measures could constitute unlawful retaliation.”
3. The investigation must be effective.
The California Fair Employment and Housing Commission (FEHC) maintains that employers must “[f]ully and effectively investigate. The investigation must be immediate, thorough, objective and complete. Anyone with information on the matter should be interviewed. A determination must be made and the results communicated to the complaint, to the alleged harasser, and, as appreciate, to all others directly concerned.”
4. The investigation must be immediate.
How soon the investigation must start depends on the circumstances. In Van Zant v. KLM Royal Dutch Airlines, 80 F.3d 708, 715 (2d Cir. 1996) the employer’s response was held to be prompt where it began investigation on the day that complaint was made, conducted interviews within two days, and fired the harasser within ten days. In Steiner v. Showboat Operating Co., 25 F.3d 1459, 1464 (9th Cir. 1994), the court held that an employer’s response to complaints were not immediate when it did not seriously investigate or reprimand the supervisor until after plaintiff filed charge with state FEP agency, even though the harasser was eventually discharged. In Saxton v. AT&T, 10 F.3d 526, 535 (7th Cir 1993) the court found that the investigation was prompt when it started one day after complaint and a detailed report was completed two weeks later. In Nash v. Electrospace Systems, Inc. 9 F.3d 401, 404 (5th Cir. 1993) the court held that the investigation was prompt when completed within one week. The court in Juarez v. Ameritech Mobile Communications, Inc., 957 F.2d 317, 319 (7th Cir. 1992) found the investigation was adequate when completed in four days.
5. The investigator must be experienced, unbiased and trusted.
There is no legal prohibition that internal employees, such as the human resources manager, can conduct investigations into employee’s complaints. If an internal employee of the company, the investigator does not have to meet any certain training requirements or are they required any particular background. However, if the case results in litigation, employers should carefully consider who they appoint as the investigator as their background, credentials, and experience will be closely examined in court.
The employee obviously cannot have a conflict of interest or any bias towards the victim or alleged harasser. Also, the alleged wrongdoer should not have any managerial control over the investigator in the organization. If the alleged wrongdoer is a high-level executive in the organization, then it may be appropriate to hire an outside lawyer versed in conducting harassment investigations to avoid any challenges to the adequacy of the investigation. The investigator should have some experience in conducting investigations, some background knowledge of the law regarding harassment, understand the appropriate structure of how to conduct the investigation (i.e., who to start with first), and be a person who can communicate well with the parties involved, and if needed can testify confidently to defend the appropriateness of the investigation.
The state’s “new” sick leave law went into effect on January 1, 2015. However, the right to begin accruing and taking sick leave under this law did not go into effect until July 1, 2015. Note that many employers already had sick leave policies in place for covered employees before the new law was adopted. If those existing sick leave policies already satisfied the requirements of the new law, there may not have been any required changes to an employee’s right to accrue and take sick leave as a result of the new law.
To qualify for sick leave, an employee must: Work for the same employer, on or after January 1, 2015, for at least 30 days within a year in California, and Satisfy a 90-day employment period (similar to a probationary period) before taking any sick leave If you work less than 30 calendar days within a year for the same employer in California, then you are not entitled to paid sick leave under this new law.
The 90 calendar day period works like a probationary period. If you work less than 90 days for your employer, you are not entitled to take paid sick leave. A qualifying employee begins to accrue paid sick leave beginning on July 1, 2015, or if hired after that date on the first day of employment. An employee is entitled to use (take) paid sick leave beginning on the 90th day of employment.
All employees who work at least 30 days for the same employer within a year in California, including part-time, per diem, and temporary employees, are covered by this new law with some specific exceptions. Employees exempt from the paid sick leave law include:
- Providers of publicly-funded In-Home Supportive Services (IHSS) • Employees covered by collective bargaining agreements with specified provisions
- Individuals employed by an air carrier as a flight deck or cabin crew member, if they receive compensated time off at least equivalent to the requirements of the new law
- Retired annuitants working for governmental entities.
Employees of a staffing agency are covered by the new law. Therefore, whoever is the employer or joint employer is required to provide paid sick leave to qualifying employees. Some employers already have paid time off or sick leave policies that meet the requirements of the new law, and for employees who are covered by those existing plans, the amount of sick leave you are entitled to take California will not change.
In general terms, the law requires employers to provide and allow employees to use at least 24 hours or three days of paid sick leave per year. Employers adopting new policies to comply with the law may choose whether to have an “accrual” policy or a “no accrual/up front” policy. An accrual policy is one where employees earn sick leave over time, with the accrued time carrying over in each year of employment. In general terms (and subject to some exceptions), employees under an accrual plan must earn at least one hour of paid sick leave for each 30 hours of work (the 1:30 schedule). The law allows employers to limit an employee’s use of paid sick leave to 24 hours or three days during a year. The law also allows an employer to limit an employee’s total accrued paid sick leave to no more than 48 hours or six days.
A no accrual/up front policy makes the full amount of sick leave for the year available immediately at the beginning of a year-long period, except for initial hires where it must be available for use by the 120th day of employment. The employer must provide at least 24 hours or three days of paid sick leave per year and the full amount of this leave must be available for the employee’s use from the beginning of each year of employment, calendar year, or 12-month period.
An employer may also elect to advance sick leave to an employee before it is accrued, but there is no requirement for an employer to do so under this law. Furthermore, the paid sick leave law requires that your accrued and unused sick leave be restored to you if you return to the same employer within 12 months from the previous separation. Note: An employer is not required to restore previously accrued and unused paid time off (PTO) however if the sick leave was provided pursuant to a PTO policy covering sick leave which was paid or cashed out to the employee at the end of the previous employment with that employer.
Remember, the new law establishes minimum requirements for paid sick leave, but an employer may provide sick leave through its own existing sick leave or paid time off plan, or establish different plans for different categories of workers. Each plan must satisfy the accrual, carryover, and use requirements of the new law. In general terms, the minimum requirements under the new law are that an employer must provide at least 24 hours or three days of paid sick leave per year.
A paid time off (PTO) plan that employees may use for the same purposes of paid sick leave, and that complies with all applicable minimum requirements of the new law, may continue to be used. In general terms, the new law provides that, employers who adopt an accrual plan for paid sick leave, employees must accrue at least 1 hour of paid sick leave for each 30 hours of work. An employer may use a different accrual method, as long as the accrual is on a regular basis and results in the employee having no less than 24 hours of accrued sick leave or paid time off by the 120th calendar day of employment, or each calendar year, or in each 12-month period.
The law also has a “grandfather” clause, which allows employers with paid sick leave policies or paid time off policies that were in existence prior to January 1, 2015, to maintain those policies and be deemed in compliance as long as they meet the following requirements: • The accrual provides no less than one day or 8 hours of accrued paid sick leave or paid time off within three months of employment per year, and • The employee was eligible to earn at least three days or 24 hours of paid sick leave or paid time off within 9 months of employment. Sick leave or annual leave provided to governmental employees pursuant to either certain Government Code provisions or a memorandum of understanding meet the accrual requirements.
Finally, an employer may limit or cap the overall amount of sick leave an employee may accrue to 6 days or 48 hours. You do not have the right to cash out unused sick days like vacation and paid time off, unless your employer’s policy provides for a payout. If you leave your job and get rehired by the same employer within 12 months, you can reclaim (restore) what you had accrued in paid sick leave, provided it was not paid out pursuant to a paid time off policy at termination.
WFB LEGAL CONSULTING, INC.–A BEST ASSET PROTECTION Services Group
LAWYER for BUSINESS
As a veteran entrepreneur and small-business owner, I know how difficult it can sometimes be to keep your operation lean and profitable. Often small-business owners are striving to make their businesses less complicated so they can keep more of their time and money. However, the measures taken to streamline a small business can unintentionally lead to costly mistakes, like breaking employment laws.
Here are five employment laws that you might inadvertently be breaking:
- Do not label independent contractors as employees.
It can be tempting to designate workers as independent contractors. After all, you don’t pay contractors overtime wages or benefits, nor do you have to remit payroll taxes on their earnings as you would for an employee. All of these extra things are very expensive for employers and eliminating them simplifies your payroll and thickens your margins. Unfortunately, small-business owners do not get to choose if a worker is truly an employee or a contractor — that privilege belongs to the government.
What are the costs if you label a worker as a contractor when they are really an employee? You could owe back wages, penalties, and back taxes. The government (both state and federal) takes worker misclassification very seriously. Don’t risk it.
Correctly classifying a worker can be complicated. Here’s a tip — use the DOL (Department of Labor) Independent Contractor test to help you correctly classify a worker. If you are still unsure about a worker’s status, don’t hesitate to request an IRS determination by filling out Form SS-8 or contact an employment/labor attorney.
- Don’t use exempt classification to avoid overtime.
Exempt employees are usually paid a salary and don’t receive extra pay for working overtime hours. Employing only salaried workers and automatically classifying them as exempt might sound nice. Doing so would definitely simplify your payroll. However, just because an employee is being paid a salary, she/he is not automatically exempt from overtime wages. According to government regulations, you are required to give overtime pay to some salaried employees under certain circumstances.
The government says that exempt employee qualifications must be met in order for correct classifications to be made. If you accidentally exempt employees from overtime wages when they should receive them, your employees can sue you.
An employee must meet the federal salary and job duties requirements in order to be exempt from overtime wages. Employees who don’t meet these requirements are designated nonexempt. For nonexempt employees, you must pay overtime wages when they work overtime hours. Please have a business employment lawyer as part of your team to advise you before you run into trouble.
- You may not subtract loan payments from pay.
The great thing about being a small-business owner is that you get to know your employees very well. If you’re anything like I am, you also want to take good care of them. There may be an occasion when an employee needs a small loan during a tough time, and you want to help them out. So, you decide that you’ll simply deduct a few payments from their paycheck to repay the loan. As it is, you simply can’t do that. Your honest attempt to be a caring employer and friend can get you into hot water. Most states will not allow employers to deduct anything from employee paychecks other than taxes and benefits. This doesn’t mean you can’t give your employee a loan, however. It simply means that when you give a loan to an employee, you’ll want to have them sign a promissory note. In other words, you’ll want to structure the loan like you would any other loan and treat their pay separate from the loan arrangement. You can ask a lawyer to create the promissory note and you’ll also need to create a payment schedule with the employee.
- Do not fire an employee for taking leave.
Consider the following scenario:
A doctor prescribes bed rest to one of your employees for a length of time. To accommodate this need, the employee must take leave, but that leave is disruptive to business operations and costs you productivity. So, you fire the employee as a cost-savings measure.
You can legally fire an employee who is constantly late or abuses your vacation policy. However, employment laws prevent you from terminating employees who take time off per the Family Medical Leave Act (FMLA), use military leave, or take time off to vote or serve on a jury. Please, again, check with a business/employment lawyer who can touch all the bases on your behalf to protect your business.
- Do not refuse to pay employees for meal and rest breaks.
A funny thing happens when you become an employer, you really start to notice when people aren’t working. It might be natural to think: “when my employees are on a break, they aren’t working. So, why should I pay them?”
Simple answer: Because Federal law says you must. Let’s break down employee meal and rest breaks so you don’t end up in hot water.
If you offer meal breaks, you don’t have to pay employees for that time away from the job. You also do not have to include meal breaks in the employee’s cumulative time worked. Meal breaks are generally longer than the aforementioned “short breaks” and are at least 30 minutes long.
On the other hand, you must compensate employees for short breaks. Short breaks are factored into total time worked, and employees are entitled to take them. You also have to include short break minutes in your overtime calculations. Typically short breaks last about five to 20 minutes.
Remember, employees can sue you and the government may punish you for your error, so you will need to correct these mishaps as soon as possible. If you have misclassified employees, reclassify them correctly. If you are underpaying your employees, adjust your payroll. In some cases, you might need to give employees back pay to make up for your error. If your employment policies violate employment laws, you will need to make policy changes. If you do, make sure employees understand any changes that have been put in place.
Always document your employment decisions. When you implement a new policy, write down the details such as reasons for the policy, consequences for violations, implementation details, etc. Same goes for when you classify your workers; write down how you came to each decision. And If you discipline or fire an employee, be sure to write down your reasons. Make sure you have an employee handbook that reflects your business policies.
As a small-business owner, it is OK to try to make things easier for you and your employees. But, you must always abide by employment laws in the process.
When you form a corporation or an LLC it becomes a separate legal entity apart from its owners. This means that the business itself can own assets, enter contracts, and is liable for its own debts. If the corporation or LLC cannot pay its debts, creditors can normally only go after the assets owned by the company and not the personal assets of the owners. However, the business owner can also be held responsible for corporate or LLC debts in certain specific situations.
In Reynolds v. Bement, 36 Cal. 4th 1075, 116 P.3d 1162, 32 Cal. Rptr. 3d 483 (Cal. Sup. Ct. 2005), the California Supreme Court refused to hold an employer’s officers, directors and shareholders liable for state law wage violations arising from nonpayment of overtime hours. The case was dismissed based on the allegations on the face of the pleading without discovery or trial.
Sections 510 and 1194 of the California Labor Code obligate “an employer” to pay minimum wages and overtime compensation. See California Labor Code §§510, 1194. An employee may seek judicial relief by filing a civil action for breach-of-contract or wage-law violations, or may seek administrative relief. Reynolds, 36 Cal. 4th at 1084-85. If electing judicial relief, §1194 of the California Labor Code provides employees with a private right of action for minimum wage and overtime violations. However, neither §510 nor §1194 defines “employer,” and §1194 does not identify potential defendants. Under California law, no statute expressly subjects corporate control figures to liability for unpaid wages as “employers.” Id. at 1084-86. The court based its decision on common-law principles under which “corporate agents acting within the scope of their agency are not personally liable for the corporate employer’s failure to pay its employees’ wages.” Reynolds, 36 Cal. 4th at 1087.
Although the California Division of Labor Standards Enforcement (DLSE) is in the practice of using the “exercise control” prong of the California Industrial Welfare Commission’s “employer” definition to name corporate agents as joint defendants, the court refused to allow a private cause of action against individuals under state law and declined to resolve the apparent disconnect between DLSE administrative practice and litigants’ rights. Id. at 1088-89.
The Reynolds court also determined that Frances T. v. Village Green Owners Assn., 42 Cal. 3d 490, 229 Cal. Rptr. 456, 723 P.2d 573 (1986), did not establish liability. Village Green held corporate directors jointly liable with the corporation if they “personally directed or participated in” a corporation’s tortuous conduct. In Reynolds, personal liability did not exist because a “simple failure to comply with statutory overtime requirements” does not qualify as the kind of tortuous conduct for which Village Green imposes personal liability. Reynolds, 36 Cal. 4th at 1089-90
The California Courts of Appeal have extended the reasoning of Reynolds to claims under other sections of the Labor Code, holding that individuals are not liable under the Labor Code to pay wages upon termination, accrued vacation time or expense reimbursements. See Jones v. Gregory, 137 Cal. App. 4th 798, 804 (Cal. Ct. App. 2006). In Jones, the appellate court held that like §1194, “none of the Labor Code…sections 201, 202, 203, 227.3, 1194.5 or 2802— define ‘employers.’” Id. The court also refused to impose personal liability for “restitution” of unpaid wages under the Unfair Competition Law (UCL), which broadly prohibits unfair business practices, as well as other Labor Code violations. Bradstreet v. Wong, 161 Cal. App. 4th 1440, 1449 (Cal. Ct. App. 2008).
Brought to you by WFB Legal Consulting, Inc.–Lawyer for Business–A BEST ASSET PROTECTION Services Group.
contribution by Melissa Marsh
What Exactly Is a Confidentiality Agreement (a.k.a. Non-Disclosure Agreement, NDA)?
Today, a non-disclosure agreement (a.k.a. confidentiality agreement or NDA) has become ubiquitous and essential to maintaining a competitive edge. A confidentiality agreement is a contract whereby the parties involved promise not to divulge secret, confidential, proprietary. or protected trade secret information. A confidentiality agreement is often presented to a manufacturer who is needed to create a “proto-type,” a prospective or potential business partner, investor, or buyer prior to disclosing non-public information, or an employee who will have access to a company’s proprietary information. For example, a nondisclosure agreement (NDA) is appropriate for prohibiting others from disclosing a new design, idea, or unpatented concept, private financial records disclosed for a due diligence review, or other confidential trade secrets.
The purpose of the NDA is to create a confidential relationship between one person who has certain confidential information and another to whom the information must be disclosed to further some potential business interest. Should one of the parties to an nondisclosure agreement misappropriate the confidential information, or threaten to misappropriate the confidential information, without authorization (e.g., selling secrets to a competitor or using trade secrets against the former employer), the owner of that information can ask a court to stop the violator from making any further disclosures (injunction) and in some cases for an award monetary damages.
Situations Where a Confidentiality Agreement, or Nondisclosure Agreement, Should Be Used:
- Protect a non-patented invention or idea that requires presentment to a potential investor, business partner, or manufacturer to develop a prototype;
- Presentation of sensitive financial, and other, business records and information to a prospective purchaser or investor in your business;
- Presentation of a new product not yet available to the public to a prospective customer, buyer or licensee;
- Presentation of sensitive business information to an independent contractor, or outside business, for the purpose of having them provide a service; or
- Disclosure, on an as needed basis, of sensitive business information required for an employee to effectively perform his or her duties.
Just as there are Multiple Situations that may Require a Nondisclosure Agreement, so are there Different Types of Confidentiality Agreements.
As a business attorney, I have seen my fair share of useless, unenforceable nondisclosure agreements and confidentiality agreements. Generally, this seems to occur when individuals select some form out of a book, or now off the internet, and rely on it as if one size fits all. Well it doesn’t for a multitude of reasons.
First, there are unilateral confidentiality agreements, mutual confidentiality agreements, and multilateral confidentiality agreements. A unilateral nondisclosure agreement should be used when only one party will be disclosing sensitive information for review to another individual. A mutual nondisclosure agreement should be used when both parties will be disclosing confidential information to each other. A multilateral NDA should be used where three of more parties will be entering into a business relationship and each disclosing and receiving sensitive confidential information.
Second, the type of information to be disclosed, to whom it will be disclosed, how the information will be disclosed, the intended use of the disclosed information, for how long the confidential information will be available, and what protections the receiving party must take all are specific elements that need to be properly addressed in a well drafted nondisclosure agreement.
Important Elements in Every Nondisclosure Agreement.
A nondisclosure agreement can protect any type of trade secret, or any information not generally known that provides a business with a competitive advantage. However, the use of a generic NDA is generally of no use as a court will likely find it to be either overly broad or vague, and in turn unenforceable. A form NDA often will provide the owner of the confidential information with a false sense of security.
Every non-disclosure agreement should:
- Carefully and specifically define the nature of the confidential information to be disclosed (don’t include everything but the kitchen sink) and whether such information will or must be labeled confidential;
- Set forth the ownership rights to the information disclosed;
- Describe the purpose behind the disclosure of the confidential information;
- Enumerate the information which is not to be considered confidential, such as information already in the public domain;
- Specify the obligations of the receiving party, such as how they must protect the confidential information, limit its use or disclosure, and return or destroy the information provided;
- Set forth the time period during which the confidential information can be examined, must be returned, and the duration of the agreement;
- Provide remedies in the event of a breach, or threatened breach, of the confidential agreement; and
- Provide a host of miscellaneous standard contract provisions.
When preparing a confidentiality agreement, or NDA, it is vital to specifically set forth the nature of the confidential information to be disclosed. When defending an individual accused of misappropriating confidential information, the defense will surely raise one or more of the following arguments:
- The information claimed to be confidential had no value to the competitor
- The information claimed to be confidential was already in the public domain and in use by others
- The company made no real effort to keep the alleged confidential information secret
- The company’s definition of what was confidential included everything under the sun and is this void for vagueness.
Unlike non-competition agreements which are rarely enforceable, non-disclosure agreements that are properly drafted are typically enforceable. It is therefore important for any employee presented with a non-disclosure agreement to read it carefully. If the employee has any doubts or concerns, the employee should invest $99 to $300 to have the non-disclosure, or confidentiality, agreement reviewed and explained by an attorney.
An employer does have a right to protect his company’s trade secrets, however, the scope of that protection is limited. While an employer has the right to demand its employees sign a NDA when those employees have access to valuable company data (e.g. product formulas, private customer lists, financial reports, etc.), the employer should not ask an employee to sign a confidentiality agreement if the purpose is to protect information that would be considered common industry knowledge, or a customer list that is available off the internet, or through some other source.
What is an employee holdover provision?
Some large businesses often ask their employees to sign an employee confidentiality agreement, or proprietary right agreement, that require the employee to disclose all inventions authored, conceived or reduced to practice for up to one year after the termination of the employee’s employment. Some of these agreements also state that such inventions will be presumed to be owned by the former employer, and that this presumption may be overcome only if the employee can demonstrate that the invention qualifies for protection under California Labor Code § 2870. To satisfy this burden, the employee must prove that the invention (1) was developed entirely on his/her own time without using the employer’s equipment, supplies, facilities, or trade secret information; and (2) did not relate at the time of conception or reduction to practice to the employer’s business or actual or demonstrably anticipated research or development, or result from any work performed by the employee for the employer. See California Labor Code § 2870(a).
The California courts, however, typically rule that these provisions when they extend beyond the date employment terminated are void as an “unreasonable restraint on trade, except to the extent that they relate to ideas and concepts which were based upon [trade] secrets or confidential information” of the former employer. Armorlite Lens Co. v. Campbell, 340 F.Supp. 273, 275 (S.D. Cal. 1972). Therefore, even though many employee confidential information agreements purport to require disclosure and assignment of inventions developed after the termination of employment, such agreements will only be enforced to the extent it can be established that the employee’s invention is based upon or relates to the trade secrets or confidential information of his or her former employer.
Incentives and Non-Disclosure Agreements.
Many employers will offer current and former employees incentives in exchange for signing a NDA. This practice is both legal and common in the business world and is perfectly acceptable by the courts. For example, an employee that is leaving may be asked to sign a NDA in exchange for extra severance pay. An employer may also request a NDA when hiring a new employee. In this case, the act of receiving the job is considered incentive enough. However, if your current employer asks you to sign a NDA without compensation, then the non-disclosure agreement may be unenforceable.
LAWYER FOR BUSINESS: WFB LEGAL CONSULTING, INC.—A BEST ASSET PROTECTION SERVICES GROUP
SEXUAL HARASSMENT DISTINCTIONS YOUR BUSINESS NEEDS TO KNOW
There are essentially two types of sexual harassment: “quid pro quo” and “hostile environment.” The Guidelines provide that “unwelcome” sexual conduct constitutes sexual harassment when “submission to such conduct is made either explicitly or implicitly a term or condition of an individual’s employment,”
“Quid pro quo harassment” occurs when “submission to or rejection of such conduct by an individual is used as the basis for employment decisions affecting such individual,”
Although “quid pro quo” and “hostile environment” harassment are theoretically distinct claims, the line between the two is not always clear and the two forms of harassment often occur together. For example, an employee’s tangible job conditions are affected when a sexually hostile work environment results in a constructive discharge.
Title VII affords employees the right to work in an environment free from discriminatory intimidation, ridicule, and insult whether based on sex, race, religion, or national origin.
Similarly, a supervisor who makes sexual advances toward a subordinate employee may communicate an implicit threat to adversely affect her job status if he/she does not comply. “Hostile environment” harassment may acquire characteristics of “quid pro quo” harassment if the offending supervisor abuses his authority over employment decisions to force the victim to endure or participate in the sexual conduct.
Sexual harassment may culminate in a retaliatory discharge if a victim tells the harasser or his/her employer that he/she will no longer submit to the harassment, and is then fired in retaliation for this protest.
Distinguishing between the two types of harassment is necessary when determining the employer’s liability. But while categorizing sexual harassment as “quid pro quo,” “hostile environment,” or both is useful analytically, these distinctions should not limit an investigation, which generally should consider all available evidence and testimony under all possibly applicable theories
Remember also, that the gravamen of a sexual harassment claim is that the alleged sexual advances were “unwelcome.” Therefore, the fact that sex-related conduct was ‘voluntary,’ in the sense that the complainant was not forced to participate against her will, is not a defense to a sexual harassment suit brought under Title VII.
Rather, the correct inquiry is whether [the victim] by his/her conduct indicated that the alleged sexual advances were unwelcome, not whether the actual participation in sexual intercourse was voluntary.
Sexual harassment isn’t just a problem in show business or big business, however. Employers—including small business owners—are responsible for protecting their employees and their organizations from harassment and its legal ramifications. The consequences can be disastrous for those who don’t.
Take the Dunkin’ Donuts franchise owner in New York who agreed in August to pay $150,000 to settle a federal Equal Employment Opportunity Commission (EEOC) lawsuit after his manager repeatedly harassed young female employees;
Or McWhite’s Funeral Home in Fort Lauderdale which, according to its website, has fewer than 10 employees. Its owner agreed in May to pay $85,000 to settle harassment charges filed against him by employees;
Or take Achiote Restaurant in San Ysidro, California, which in April agreed to pay $27,500 to settle a harassment and retaliation suit. The EEOC found that owners failed to properly respond when a male manager was caught videotaping male employees in the restroom. That settlement required the restaurant’s owners to develop harassment policies and provide training to employees and managers.
Small employers would be well advised to adopt an adequate anti-harassment policy, provide training to their employees, and follow the policy if an employee makes a complaint.
Yet 67% of small employers have no anti-harassment rules or training in place, according to a new Manta poll on small business sexual harassment protocols.
Sexual Harassment: Unwelcome advances, requests for sexual favors, verbal or physical harassment of a sexual nature, or offensive remarks about a person’s sex that create a hostile work environment.
- Both men and women can be victims or perpetrators of sexual harassment.
- Harassers can be the victim’s supervisor, coworker or customer.
- Sexual harassment violations are enforced by the federal Equal Employment Opportunity Commission (EEOC) and/or state and local Fair Employment Practices Agencies (FEPA).
- Federal sexual harassment laws cover all private and public employers with 15 or more employees.
- Some states and local governments have extended these laws to very small companies with fewer than 15 employees.
SUPERVISOR LIABILITY IN EMPLOYMENT LITIGATION
An individual supervisor may be personally liable for harassing conduct—and the employer may be liable too under certain circumstances.
Contribution by Michelle MacDonald
With great power comes great responsibility. No, we’re not talking about Spider Man (but see Kimble v. Marvel Entertainment, Inc., 135 U.S. 2401, 2415 (2015)). Actually, we’re talking about the liability of a supervisor who harasses an employee. When that happens, legal responsibility rests not only with the employer, but with the individual supervisor as well. This can be heavy liability, but when the circumstances warrant, the courts have not hesitated to impose it.
Supervisor Liability Background
Under agency law, it is generally understood that managers and supervisors must be clothed with actual or apparent authority to represent the company to the outside world. In order for a supervisor to be considered an agent of the company, the company itself must either hold the manager out as an agent or negligently fail to correct the reasonable apprehension made by others that the person speaks for the company. Associated Creditor’s Agency v. Davis, 13 Cal. 3d 374 (1975).
This distinction does not carry over to the employment law sphere in California. When it comes to interactions with the company’s own employees—which form the basis of claims under the Fair Employment and Housing Act (Cal. Gov’t Code §§ 12940, et seq.)—supervisors may be considered “employers,” thereby subjecting the company, and possibly even themselves individually, to statutory liability regardless if the company itself ratified their acts in any way. The rationale as to when and why this occurs is discussed below.
The Fair Employment and Housing Act (FEHA) prohibits (among other things) discrimination, harassment and retaliation by “employers” in the workplace (see Cal. Gov’t Code § 12940). FEHA addresses these three categories of liability in separate sections and, therefore, they have been handled by the courts as distinct bases of liability although there is some overlap between the categories. See Cal. Gov’t Code §§ 12940(a)[discrimination], 12940(h) [retaliation] and 12940(j)(1) [harassment]; see also Roby v McKesson Corp., 47 Cal. 4th 686, 705 (2009)); Miller v Department of Corrections, 36 Cal. 4th 446 (2005).
Government Code section 12940 only uses the word “supervisor” and “supervisors” a single time while identifying their participation in the wrong as an exception from the general rule that employers must have actual knowledge of harassment before liability attaches (Cal. Gov’t Code §12940 (j)(1)). This language is in keeping with both federal and state case law, which treats supervisors differently than other employees in matters of civil rights and discrimination in the workplace. The United States Supreme Court has defined a supervisor as an employee empowered by the employer “to take tangible employment actions …[and] a significant change in employment status [against fellow employees] such as hiring, firing, failing to promote, reassignment with significantly different responsibilities or a decision causing a significant change in benefits.” Vance v. Ball State, 133 S. Ct. 2434 (2012), 2443.
A supervisor is an agent of the employer (Janken v. GM Hughes Electronics, 46 Cal. App. 4th 55 (1996)), and the actions of a high-level manager may be more injurious to fellow employees because of the prestige and authority that a manager enjoys within an organization. See Roby at 686.
In short, the bad acts of a supervisor are treated very differently under FEHA than boorish or discriminatory behavior of non-managerial employees pursuant to the real-world premise that supervisors are more capable of causing psychological and economic harm to the persons under their control in the same organization. Moreover, the organization itself is responsible for the elevation of the harassing individuals to their positions of power and, therefore, shares responsibility for their actions even if other persons in the organization have no actual knowledge of their actions.
Depending on the theory of recovery triggered by their actions, the supervisors may even be directly and individually responsible to the plaintiff under FEHA.
Discrimination, Harassment and Retaliation
Government Code Section 12940 (a) bars discrimination in the workplace on the basis of gender, race, religion, sexual orientation, gender expression, medical condition, military and veteran status, disability and age. Courts have interpreted this mandate to potentially involve the performance of commonly necessary personnel actions and other management duties such as hiring, firing, promotion and compensation, which may be found to be discriminatory if based on improper motives. See Janken v GM Hughes Electronics, 46 Cal. App. 4th 55, 64 (1996). The California Supreme Court has specifically found that exercise of personnel management properly delegated by an employer to a supervisory employee might result in discrimination. As a matter of public policy, however, individual supervisors are not liable to plaintiffs for discrimination under FEHA in carrying out the policies of the employer. Reno v Baird, 18 Cal. 4th 640, 655 (1998).
Harassment, on the other hand, is a much different story. It is defined to potentially include “slurs or derogatory drawings, [physical interference] with freedom of movement… [or] unwanted sexual advances.” See Cal. Gov’t Code §12940 (j)); Reno v Baird, supra, 18 Cal. 4th at 646. None of these types of actions are necessary to the management of personnel for the benefit of an employer. As such, any employee, including a supervisor, is personally liable for acts of harassment under section 12940 (j)(3); however, employers are only strictly liable for supervisors who harass their fellow employees. Gov’t Code §12940(j)(1).
The supervisor must be acting in the course and scope of his or her employment when the harassment occurred. Myers v. Trendwest Resorts Inc., 148 Cal. App. 4th 1403 (2007). However, if the harassing employee is a non-supervisor, the only way to hold the employer responsible is to show that the employer knew or should have known of the harassment and failed to take immediate and appropriate corrective action. See Cal. Gov’t Code §12940 (j)(1). Moreover, a second tier supervisor who knows of the harassment but fails to do anything is not subject to personal liability although failing to respond appropriately to the complaints of harassment may well trigger liability against the company itself. Fiol v Doellstedt, 50 Cal. App. 4th 1318 (1996).
Retaliation under FEHA is governed by section 12940 (h), which makes it an unlawful employment practice to discharge, expel or otherwise discriminate against any person because the person has opposed practices forbidden under the FEHA, or because that person has filed a complaint, testified or assisted in any proceeding instituted under the protections of FEHA. The California Supreme Court has ruled that supervisors are not individually liable for retaliation on the ground that retaliation of the type identified by the Government Code is generally a corporate decision, potentially made collectively by a number of persons which would potentially make individual responsibility unfair and unwarranted. See Jones v. Lodge at Torrey Pines Partnership, 42 Cal 4th 1158 (2008). In this sense, discrimination and retaliation—as defined and governed by the code—are treated similarly by the courts as an expression of corporate policy as opposed to individual bad acts.
The Roby Case
Many of the foregoing concepts came together in Roby v McKesson, 47 Cal. 4th 686 (2010). The plaintiff was a 25-year employee of the defendant serving as a customer service liaison at a local distribution center. She was responsible for processing forms and handling customer service issues related to product delivery and, up until the last three years of her tenure, had received uniformly favorable performance reviews. However, the plaintiff began to experience periodic panic attacks involving heart palpitations, shortness of breath, dizziness, trembling and excessive sweating. The attacks would come on suddenly and without notice.
At approximately the same time, the defendant employer instituted a companywide attendance policy which required a 24-hour advance notice for absences. The policy included a complex calculation of tardiness and absences, and imposed progressive levels of discipline based on those calculations and the number of warnings an employee received in any 90-day interval. The court noted that the policy operated to the disadvantage of employees such as the plaintiff, who because of medical conditions, might require several unexpected absences in close succession.
In the midst of the plaintiff’s struggles with the new attendance policy, she was reassigned to another immediate supervisor who objected to her frequent absences. The plaintiff also was prescribed medication that caused her body to produce an unpleasant odor. Her panic attacks worsened, even to the point where the plaintiff dug her nails into the skin of her arms producing open sores.
The new supervisor made negative comments publicly to coworkers about the plaintiff’s body odor, attendance and habits related to the panic attacks. She called the plaintiff “disgusting,” refused to acknowledge the plaintiff’s greetings, belittled her contribution to the company, excluded her from office parties, made faces at the plaintiff and frequently reprimanded her. The supervisor regularly ignored the plaintiff at staff meetings and overlooked her when distributing and handing out holiday gifts and travel trinkets to other employees. She also announced the plaintiff’s absences in a demeaning fashion. Eventually, the plaintiff accumulated too many unexpected absences due primarily to her panic attacks. She was terminated pursuant to the company’s attendance policy, and proceed to file suit.
The plaintiff’s claims against her employer included wrongful termination; disability discrimination in violation of section 12940 (a) against the employer only; and harassment in violation of section 12940 (j) against both the employer and the supervisor individually.
After a successful trial in which the plaintiff was awarded significant economic, non-economic and punitive damages against both the company and the supervisor individually, the court of appeal was tasked with the assignment of reviewing the verdicts and analyzing their validity in light of current law. Of importance to this discussion, the appellate court reviewed the record and found that it did not support the plaintiff’s claims of harassment partly on the grounds that the plaintiff was relying on the same evidence of company policy for different and distinct claims.
The California Supreme Court disagreed with that approach, noting that while discrimination under section 12940 (a) requires “official action [taken by the employer] with respect to the employee such as hiring, firing, failure to promote, adverse job assignment, significant change in compensation or benefits, or official disciplinary actions,” Roby, supra, 47 Cal 4th at 706, there is no requirement preventing the same acts from being the basis of a harassment action under section 12940 (j)—even though discrimination and harassment are separate wrongs under the FEHA. The Roby court found that the plaintiff’s discrimination claim was founded both in the termination and the attendance policy which precipitated it, but also in the “official employment actions” such as the failure to include the plaintiff at office parties. Roby, supra, 47 Cal 4th at 708.
In addition, the acts of the supervisor, including the demeaning comments about body odor, failure to respond to greetings, disparate treatment with regards to handing out small trinkets and facial expressions, were found to support claims of harassment under section 12940 (j). Roby, supra, 47 Cal 4th at 709. Even though these actions may only have been expressions of personal animus between the supervisor and the plaintiff and arguably unrelated to the supervisor’s managerial role, the very fact that they were being performed by a supervisor clothed the acts with an official pattern of bias. Id.
The Roby court noted explicitly, “[Acts] of discrimination can provide evidentiary support for a harassment claim by establishing discriminatory animus on the part of the manager responsible for the discrimination, thereby permitting the inference that rude comments or behavior by that same manager was similarly motivated by discriminatory animus.” Id. In that way, the same acts when performed by a supervisor may communicate a “hostile message” which not only encompasses official employment actions but also contributes to harassing social interactions. Specifically, the California Supreme Court cited in this category the shunning of the plaintiff during staff meetings, the belittling of plaintiff’s job and the reprimands in front of coworkers. Roby, supra, 47 Cal 4th at 709.
Finally, the Roby court found that the critical inquiry is whether the overlapping evidence can provide support individually for both harassment and discrimination. At that point, the trier of fact can determine the damages based upon whichever theory under FEHA is successful. Roby, supra, 47 Cal 4th at 710.
The Roby court analyzed the punitive damages awards against both the company and the individual supervisor. Under Civil Code section 3294 (a), punitive damages may be awarded when proven by clear and convincing evidence that the defendant has been guilty of oppression, fraud or malice. The California Supreme Court further relied on the analysis expressed by the United States Supreme Court in State Farm v. Campbell when determining the degree of reprehensibility of the employer’s conduct and, therefore, the justification as to the amount of the award. See State Farm Mut. Auto. Ins. Co. v. Campbell, 538 U.S. 408 (2003); Roby, supra, 47 Cal. 4th at 712-718. The court was found that the plaintiff incurred physical harm to her health, that she was objectively affected as to her emotional well-being and that as a low-level employee she was financially vulnerable to her employer’s actions.
However, the Roby court drew a distinction between the wrongful, malicious and frequently repeated conduct of the supervisor towards the plaintiff and the single act of the employer in adopting a strict attendance policy. The court noted that with respect to punitive damages, the supervisor in question was not a managing agent, but 1 of 20,000 employees without the broad authority implied by the award which intended to punish the company as a whole. The court cited the lack of evidence that the supervisor’s actions were a “product of corporate culture.” Rather the wrong of the corporate employer was a failure to foresee the consequences of its attendance policy on its disabled employees, while the animus displayed by the supervisor was described as “isolated.” Roby, supra, 47 Cal 4th at 716.
Ultimately, although the California Supreme Court agreed in Roby that punitive damages were warranted against the employer, it concluded that the acts were “at the low end of the range” of reprehensibility (47 Cal.4th at 717) and it adjusted the damages awarded accordingly.
Supervisor Liability Conclusion
California law takes into account the real-world experiences of employees and supervisors and the actions they take matter greatly when it comes to promoting fairness and equality in the workplace. Even low-level supervisors are considered clothed with authority, and they can set the tone for life within a company. A discriminatory act by a coworker may foster an unpleasant but transitory experience, whereas that same act by a supervisor can elevate the wrong to an expression of corporate bias. As such, employers are strictly liable for harassment by supervisors under FEHA, while harassment by co-workers requires a showing of actual knowledge of the employer before liability attaches.
However, when it comes to punitive damages, supervisors are not necessarily managing agents, and their acts must be more than isolated wrongs but an actual expression of a corporate philosophy in order to make the company liable for exemplary damages.
The easiest way to avoid all of these supervisor liability issues is to have a workplace where everyone is treated with dignity, respect, and fairness.
EMPLOYMENT TIPS CONCERNING THE EXPUNGEMENT OF AN EMPLOYEE’S CRIMINAL RECORD
If you have successfully gotten a 1203.4 dismissal (“expungement”), it does NOT mean that the conviction is wiped away, sealed, purged or destroyed. The arrest is still there; the charges are still there; but technically the conviction is “set aside and dismissed”. What does this all mean for you as an employee?
On your official criminal history kept in Sacramento, the case number will have the words “set aside and dismissed” next to it instead of “convicted”. That might help you for things like getting state licenses (like nursing licenses, etc.). On background checks done by private employers, they might see that the conviction was dismissed also. There is no guarantee, though, that they won’t still see the conviction, because they just check public records.
If potential employer asks you if you have ever been convicted, you can honestly answer “no.” Legally, the conviction is gone. However, If you know they are going to do a background check, you might want to say that you had a case dismissed (just in case they don’t see the expungement when they look through the public records).
IMPORTANT: There are a few places you still have to say yes, you have been convicted, even if it’s all been expunged. Those places are: 1) the INS; 2) any state or local licensing agency (like when you’re applying for a nursing license); 3) contracts with the state lottery; and 4) in an application for public office.
Finally, if you’re applying for a job in a different state, you should be on the safe side and tell potential employers that you had a conviction but it was dismissed, just in case they have different requirements.
UNDERSTANDING VACATION PAY IN CA.
In California, employers are not required to provide any paid vacation or paid time off (PTO) to their employees. However, studies have shown that giving employees time off to relax benefits not only employees, but also employers. Happier, healthier employees usually mean greater productivity and employee retention for employers. Because of this, many employers choose to offer vacation as a benefit of employment.
Employers who choose to offer vacation must follow certain guidelines. California law considers accrued vacation to be a form of wages that have already been earned by the employee. Among other things, this means that accrued vacation cannot expire and must be paid out to an employee upon termination or separation from the employer. The same rules apply to PTO.
Sick leave is not subject to the same rules as vacation and PTO. As of July of 2015, California employers are required to provide a minimum number of paid sick days per year.
In general, vacation accrues over time as an employee works. For example, if a vacation policy gives an employee ten days of vacation each year, he or she will accrue five days of vacation after working for six months.
Employers can designate a waiting period at the beginning of employment before vacation starts to accrue, though. The waiting period often correlates with the 90-day introductory period, but can be as long as the first year of employment.
Employers can also give vacation to certain groups of employees but not others, as long as they don’t discriminate based on a protected characteristic, such as race or gender. For example, employers may give vacation only to full-time employees or only to managers.
Reasonable Cap on Vacation Accrual
Unlike some other states, California does not allow “use-it-or-lose-it” vacation policies. Under a “use-it-or-lose-it” policy, accrued vacation must be used by a certain date – usually by the end of the year – or it is forfeited. Because accrued vacation is considered earned wages, use-it-or-lose-it policies are seen as illegally withholding wages owed to employees.
Employers can, however, place a cap on vacation accrual. In other words, once employees reach a certain number of days, they will stop accruing vacation until they use some of their vacation. This allows employers to maintain some control over vacation accrual and prevent employees from racking up unreasonable amounts of vacation time.
While there’s no set number for a permissible cap, the California Department of Labor Standards Enforcement (DLSE) – the agency that enforces California wage and hour laws – has provided some guidance. In the past, the DLSE has held that a vacation cap could be no less than 1.75 times the annual accrual rate. However, the DLSE has since withdrawn that bright line rule and instead states only that the cap must be “reasonable.” While a 1.75 cap is probably still the safest ratio, a 1.5 cap may also be within legal limits. The example below shows how the vacation cap works.
Example: Sunshine Inc. provides all full-time employees with ten days of paid vacation each year. Sunshine’s vacation policy has a cap of 1.75 times the annual accrual rate, or 17.5 days (1.75 × 10 days). An employee’s vacation will roll over year to year, but once he or she reaches 17.5 days, no more vacation will accrue until the vacation bank falls below that amount.
Employers have a lot more freedom to shape their vacation policies when it comes to scheduling. In general, employers can decide when and how employees may schedule their time off from work. An employer may, for example, require that employees submit vacation requests a certain number of days or weeks in advance. Employers can also set aside certain “blackout” dates during which no employees may take vacation, such as the holiday season for a retail business or the tax season for an accounting firm. And, an employer can place limits on the number of employees who can be out on vacation at the same time.
As long as the employer’s decisions are not discriminatory based on race, sex, religion, disability or another protected class under Federal or California law, the employer is free to set the parameters in which vacation is scheduled.
Payout of Vacation on Separation
All accrued, but unused, vacation must be paid to an employee who separates from the employer. Vacation is considered earned wages and must be paid at the same time as the employee’s final wages:
- If an employee is fired, the final paycheck is due at the time of discharge.
- If an employee quits with 72 hours’ notice, the final paycheck is due at the time of quitting.
- If an employee quits with less than 72 hours’ notice, the final paycheck is due within 72 hours of the time of quitting.
Paid sick days that are part of a separate sick leave policy are not subject to the same rules and do not have to be paid out when an employee leaves the company. However, when sick days are included in a general PTO policy, all of the PTO is treated like vacation and must be paid out on separation.
Personal Days and Floating Holidays
Some employers also offer a set number of “personal days” or “floating holidays” each year. In general, holidays that are tied to a specific event don’t need to be paid out upon separation. For example, if an employer offers paid holidays for Christmas, New Year’s, or the employee’s birthday or work anniversary, these do not need to be paid out. But, when the personal days or floating holidays are not tied to a specific event, and may be taken at any time during the year for any reason, they are treated as vacation. In other words, personal days or floating holidays cannot be subject to a use-it-or-lose-it policy and must be paid out upon separation.
Advances on Vacation
Employers are free to advance vacation to employees, but they cannot deduct advanced vacation from a final paycheck if an employee leaves earlier than expected. For example, if an employee has only one week of accrued vacation, but takes two weeks of vacation and then quits, the employer cannot deduct the week of vacation from his or her final paycheck.
Waiting Time Penalties
Because vacation is considered earned wages, an employer may be liable for “waiting time penalties” for failing to timely pay out vacation with the final paycheck. The waiting time penalty is the employee’s average daily wage, for up to 30 days. Employees who don’t receive their vacation in their final paychecks can file a wage claim with the DLSE, or sue in court, to recover this penalty.
NEW FEDERAL OVERTIME RULES WILL IMPACT THE PAYROLLS OF THOUSANDS OF SMALL BUSINESS OWNERS ACROSS THE UNITED STATES.
Employers have until Dec. 1 to pay salaried workers a minimum of $913 a week or begin paying overtime, Vice President Joe Biden told a small crowd gathered today at Jeni’s Splendid Ice Creams, a small business headquartered in Columbus, Ohio.
“Folks, it’s a matter of our economy,” Biden said, predicting the rule change would trigger a “virtuous cycle” of spending from middle-class workers with more disposable income.
“$12 billion over the next 10 years will go into the economy, to people who will spend it all,” Biden said. “This means there will be more people working at the soda fountain, at the movie theater, at the beauty salon.”
The new regulations raise the minimum annual salary for overtime-exempt employees from $23,660 to $47,476. The Department of Labor estimates the changes will affect 211,000 small businesses and their 1.8 million employees.
Biden did not mention the impact the rule change would have on small employers, aside from suggesting small businesses would reap the indirect benefits of increased consumer spending.
Small businesses with at least two employees and annual sales of $500,000 or more are required to comply with Fair Labor Standards Act overtime regulations. Companies with salaried employees like assistant managers or office administrators now face a tough choice: Meet the higher minimum salary, or switch certain employees to hourly pay with overtime.
The rules will likely catch many small employers off-guard. A recent poll found that 52% of small business owners were not aware that today’s changes were coming. More than half of small business owners surveyed said they don’t know whether their salaried employees are exempt from overtime pay under federal rules.
Labor Secretary Thomas Perez, who also attended the event, said, “Employers should understand they have flexibility,” adding that the Department of Labor will provide support to employers as they work through the new overtime rule.
CAN AN EMPLOYER MODIFY A TIME SHEET WITHOUT NOTIFYING THE EMPLOYEE?
Sometimes it’s difficult to determine what’s law and what’s not, especially if a particular action seems unfair. Believe it or not, it’s actually perfectly legal for an employer to modify a time card without an employee’s knowledge. But if you feel your time card has somehow been adjusted unfairly, speak to your supervisor and look at the Fair Labor Standards Act (FLSA) and Department of Labor laws to see if any have been broken.
Fair Labor Standards Act
The FLSA was established to govern certain laws concerning workers’ rights. The laws outlined by the FLSA cover child labor, overtime, minimum wage and employee records. The FLSA guarantees employees are paid at least minimum wage, and their pay is not allowed to drop below the minimum wage amount. Employers are also not allowed to reduce any overtime owed to their employees, and there are no laws under the FLSA that determine a maximum amount of hours someone can work.
The Wage and Hour Division
The U.S. Department of Labor (DOL) is made up of divisions that govern federal work laws. The Wage and Hour Division is in charge of several workplace issues, one of them being the proper documentation of work performed and pay earned on the job. The Wage and Hour Division enforces laws about hours worked, employee classification and pay, and documentation such as time cards.
By law, an employer is required to document the hours worked by each employee. However, there aren’t any laws about the specific paperwork required. While time cards are a good method of tracking hours, employers can use any form they want, as long as they keep proper time and wage information, including name, hours worked, pay rate, day and time when an employee’s workweek starts, pay period and total earnings during the pay period.
Length of Time Records Are Kept
If you would like to dispute a time-card modification that happened in the past, you have that right. The Wage and Hour Division requires employers to keep payroll records for three years, and time cards must be kept for two years. If you suspect an employer made an unfair or illegal modification to your time card within that time frame, it should still have the records you need to prove it. If it doesn’t, it is in violation of DOL laws.
Some acceptable reasons an employer might have to modify your time card would be if you forgot to punch in or out, you took paid vacation or if you accidentally double-punched a time. Some unacceptable reasons for modifying your time card would be reducing your hours on a time card to punish you, erasing overtime hours or clocking you out for a break or a lunch you didn’t take.
THE FAMILY AND MEDICAL LEAVE ACT: KNOW ITS IMPORTANT POINTS AND THEIR APPLICATION FOR YOU?
Like employers in every state, California employers must comply with the federal Family and Medical Leave Act (FMLA), which allows eligible employees to take unpaid leave, with the right to reinstatement, for certain reasons. In addition, California has several laws that give employees the right to take leave for family and health reasons. Employees who are covered by more than one of these laws are entitled to the rights set out in the most protective law.
California employers must comply with the FMLA if they have at least 50 employees for at least 20 weeks in the current or previous year. Employees are eligible for FMLA leave if:
- they have worked for the company for at least a year
- they worked at least 1,250 hours during the previous year, and
- they work at a location with at least 50 employees within a 75-mile radius.
FMLA leave is available if an employee needs time off to:
- bond with a new child
- recuperate from a serious health condition
- care for a family member with a serious health condition
- handle qualifying exigencies arising out of a family member’s military service, or
- care for a family member who suffered a serious injury during active duty in the military. (You can find more information on these last two types of leave in Military Family Leave for Employees.)
Employees in California also may take up to 12 weeks of leave in a 12-month period for a serious health condition, to bond with a new child, or for other qualifying exigencies. This leave renews every 12 months, as long as the employee continues to meet the eligibility requirements explained above.
Likewise, employees who need military caregiver leave may take up to 26 weeks of leave in a single 12-month period. However, this leave is a per-injury, per-service member entitlement. Unless the same family member is injured again, or another family member suffers an injury while on active duty, an employee may not take an additional leave for this purpose.
Employers with at least 50 employees must allow eligible employees to take up to 12 weeks of leave in a 12-month period:
- for the birth, adoption, or foster placement of a child
- for the employee’s own serious health condition, or
- to care for a family member with a serious health condition. Unlike the federal FMLA, California laws includes same-sex spouses, domestic partners, and children of domestic partners as family members.
Under California’s newest law regarding leave, an employee who, on or after July 1, 2015, works in California for 30 or more days within a year from the beginning of employment, is entitled to paid sick leave. Employees, including part-time and temporary employees, will earn at least one hour of paid leave for every 30 hours worked. Accrual begins on the first day of employment or July 1, 2015, whichever is later.
Exceptions: Employees covered by qualifying collective bargaining agreements, In-Home Supportive Services providers, and certain employees of air carriers are not covered by this law. An employer may limit the amount of paid sick leave an employee can use in one year to 24 hours or three days. Accrued paid sick leave may be carried over to the next year, but it may be capped at 48 hours or six days.
The California Fair Employment and Housing Act (CA-FEHA), the same state law that prohibits discrimination, provides protection for pregnancy-related disabilities. PDL allows employees disabled by pregnancy, childbirth or a related medical condition to take up to four months (defined as 17.3 weeks or 122 days) of job-protected leave. It does not provide for any time off for the birth or placement of a child in foster care or adoption. Thus, a woman with a difficult pregnancy is entitled to up to 17.3 weeks or 122 days of disability leave (with the proper medical certification), and the employer cannot discriminate against her on the basis of the pregnancy or pregnancy-related disability.
Employers should also note that additional leave time under the FEHA as a reasonable accommodation could be triggered if an employee has a qualifying disability. Employer coverage PDL applies to private employers that employ at least five or more full- or part-time employees. California public employers are covered regardless of the number of employees. A not-for-profit religious association or religious corporation that is exempt from federal and state income tax is not an employer under the meaning of this act. Eligible employee Unlike the CFRA and the FMLA, PDL has no length of service or hours worked requirement before an employee disabled by pregnancy, childbirth or related medical condition is entitled to a pregnancy disability leave. Therefore, a newly hired employee is immediately eligible for such leave.
The PDL runs concurrently with the FMLA but with not the CFRA. Pregnancy is not covered or considered a serious health condition under the CFRA, and women with difficult pregnancies are not entitled to protected leave under the CFRA. The CFRA leave can be used by an employee only following the birth of a child to care for a healthy newborn or a newborn with a serious health condition. Instead, disabilities related to pregnancy are covered under the PDL and the FMLA, and possibly the FEHA as a disability-reasonable accommodation. Even if an employee has no complications with her pregnancy, she could be entitled to PDL leave if she is disabled due to a pregnancy-related medical condition post-childbirth.
PRIMER ON CALIFORNIA WAGES, OVERTIME PAY AND EMPLOYEE BENEFIT LAWS
*Full and Part Time Employment
How many hours does an employee have to work to be full-time?
Part-time status is determined solely by the employer. Generally, most employers consider employees who work more than 32 hours per week to be full time employees. However, some employers consider all employees who work less than 40 hours a week to be part time.
Can an employee be forced to work 7 days a week?
The Fair Labor Standards Act (FLSA) does not limit the number of hours per day, or per week, that an adult employee can be required to work. However, if you initially agreed to work say 5 days a week, and your employer unilaterally decides to increase your work schedule to 7 days a week hoping you will quit, this may be deemed a termination and would entitle the employee to unemployment insurance benefits, and possibly damages for wrongful termination.
Do On Call employees have to be paid for the time spent waiting to work?
Generally, employees who are “On Call” must only be paid for the time when they are called in to work. The Fair Labor Standards Act requires the waiting time to be paid only if the employee must remain on, or so close to, the employer’s premises that the employee could not use the time effectively for his or her own personal purposes.
To determine whether an employee must be paid for time spent On Call, the courts typically apply a seven factor test: (1) whether there was an on-premises living requirement; (2) whether there were excessive geographic restrictions on the employee’s movements; (3) whether the frequency of calls was unduly restrictive; (4) whether a fixed time limit for response was unduly restrictive; (5) whether the On Call employee could easily trade On Call responsibilities; (6) whether use of a pager could ease restrictions; and (7) whether the employee had actually engaged in personal activities during the On Call time period.
Does an employer have to reimburse his or her employees for their mileage?
Pursuant to California Labor Code §2802, California employers are required to reimburse employees for all expenses incurred by the employee in performing their duties, including expenses for travel, dining, and mileage (other than to and from work/home). The employee cannot agree to waive this right to receive reimbursement.
In addition, the California Labor Commissioner has stated that any employer who reimburses its employees at less than the standard IRS mileage rate presently 56 cents per mile in 2014 (51 cents per mile for 2011, and 55.5 cents for 2012, 56.5 cents per mile for 2013) will have to prove that the employee’s actual vehicle expense was in fact less than the standard IRS mileage rate, or be subject to liability for the difference.
*California Minimum Wage Laws
At present, the California Minimum Wage is $8.00. With few exceptions, California employers must pay their employees at least the $8.00 state minimum wage since it is higher than the federal minimum wage ($7.25 as of July 24, 2009), but in some cases a California employer must pay their employees a higher local living wage. A California employer must [ay the higher local living wage, if the city in which they operate, or provide services to, has enacted a local minimum wage ordinance.
Some employees who are exempt from the minimum wage law include: as outside salespersons, individuals who are the parent, spouse, or child of the employer, and apprentices regularly indentured under the State Division of Apprenticeship Standards. Minimum Wage Order (MW-2007). There is also an exception for learners, regardless of age, who may be paid not less than 85% of the minimum wage rounded to the nearest nickel during their first 160 hours of employment in occupations in which they have no previous similar or related experience.
Some California employers are required to pay more than the state minimum wage if they are subject to a “local living wage ordinance.” These local living wage laws require California employers to pay a wage higher than the state’s minimum wage, and they are spreading rapidly among local governments. For example, San Diego enacted a local living wage ordinance that requires employers providing services to the county to pay their workers at least $11.14 per hour plus $2.23 (July 1, 2011 – June 30, 2012). In San Francisco, the minimum wage ordinance requires employers to pay all employees who work in San Francisco more than two hours per week, including part-time and temporary workers at least $10.24 per hour. In the city of Santa Monica, employers in the city’s “tourism zone” must pay their workers at least $13.54 per hour, and employers providing services to the City of Santa Monica must pay their workers $13.54 per hour (unless they fall within one of the exceptions). For more information, see Local Living Wage Ordinances May Apply To ALL Employees, Even If They Work Outside The City.
On September 12, 2013, the California legislature passed AB10 to increase California’s minimum wage to not less than $10 an hour by January 1, 2016. Effective July 1, 2014, AB10 amends Labor Code Section 1182.12 to provide that California’s minimum wage shall not be less than $9 per hour and effective January 1, 2016, the minimum wage shall not be less than $10 an hour.
Can an employee agree to work for less than the minimum wage?
In California, all employers are required to pay at least the state’s required minimum wage and this cannot be waived by any agreement unless the employee falls into one of the four exceptions: (1) outside salespersons paid on commission; (2) apprentices regularly indentured under the State Division of Apprenticeship Standards; (3) learners, regardless of age (but only for up to 160 hours), and (4) individuals who are the parent, spouse, or child of the employer. Learners in occupations in which they have no previous similar or related experience must be paid at least $6.80 per hour (85% of the state’s minimum wage) for the first 160 hours worked.
Can an outside salesperson agree to work for less than minimum wage?
Outside salespersons are exempt from all California Industrial Wage Orders, including the state’s minimum wage and California’s Labor Code §1171. Inside Salespersons, however, must be paid at least the minimum wage and they are only exempt from overtime if they earn at least 1.5 times the minimum wage and if more than half of their compensation represents commissions. To be considered an outside sales person, the individual must spend at least 51% of their time away from the employer’s place of business on actual outside sales visits. If the sales person is merely sitting at home and placing cold calls on behalf of the employer, the sales person is considered an “inside sales person.”
Is a volunteer entitled to the minimum wage? (CA)
If you are working for a for-profit company. Only non-profit employers (such as churches and community-based organizations) can have unpaid volunteers. A true volunteer is not an employee and does not have the right to minimum wage.
Are tips counted towards an employee’s receipt of the minimum wage, or is the employee entitled to minimum wage plus tips?
Employees working in the state of California are entitled to California’s minimum wage ($8 per hour) plus all of their tips. An employer may not use an employee’s tips as a credit toward its obligation to pay the minimum wage.
What can I do if my employer terminates me because I asked why I wasn’t paid the minimum wage?
If your employer discriminates or retaliates against you in any manner (written warning, demotion, suspension, termination, etc.), you can file a discrimination/retaliation complaint with the Labor Commissioner or a discrimination/retaliation lawsuit in court.
*California Overtime Laws
First it must be stated that California’s overtime pay laws apply not only to California employers, but also to out of state employers who send an employee into California, even on a temporary basis.
California’s overtime pay laws require the payment of time and one half to non-exempt employees for: (1) each hour worked over eight in a single workday, (2) each hour worked over forty in a single workweek, and (3) the first eight hours worked on the seventh day of work in a particular workweek. California’s overtime pay laws also require employers to pay employees double time for: (1) each hour worked over twelve in a single day and (2) each hour worked over eight on the seventh consecutive day of work in any given workweek.
Whether an employee is exempt from overtime pay, or non-exempt from overtime pay, often gets employers who either intentionally, or accidentally, misclassify their employees into serious trouble. For more on who is exempt from overtime pay, please see California’s Overtime Pay Laws – Who is Exempt From Overtime?.
If an employee works unauthorized overtime is the employer obligated to pay for it?
California employers must pay overtime, whether authorized or not at the rate of one and one-half (1.5) times the employee’s regular hourly rate for all hours worked in excess of 8 in a day and for the first 8 hours of work on the seventh consecutive day of work in a work week. Employees are entitled to double time (2.0 times the employee’s rate of pay) for all hours worked in excess of 12 hours in any day and for all hours worked in excess of 8 on the seventh consecutive day of work in a work week.
If an employee works unauthorized overtime, the employer is limited to disciplining or terminating the employee. The employer must remit payment to the employee for all of the overtime hours worked.
If an employee signs a paper agreeing to be salaried and exempt from overtime, can the employee still get overtime pay?
An employee who is entitled to overtime pay (non-exempt) cannot waive his or her right to overtime pay wages. It does not matter if the employee signed a paper agreeing to be exempt from overtime or agreeing to no overtime. The employee’s actual job duties determine whether the employee is exempt from overtime and whether or not that employee is entitled to overtime pay. If the employee’s job duties and salary do not meet all the requirements for an overtime exemption, the employee is entitled to overtime pay.
Can an employee waive his or her right to overtime pay compensation?
California Labor Code Section 1194 requires that an employee be paid all overtime compensation even if the employee agreed to work for regular pay. In fact, a California employee cannot waive his or her right to overtime pay.
When is a computer professional entitled to overtime?
A large portion of California’s computer professionals are not entitled to overtime pay. Pursuant to Labor Code §515.5, to be exempt from overtime pay the computer professional or programmer must earn at least $79,050 annually ($6,587.50 monthly and $37.94 hourly) and spend at least 50% of his or her time on:
1. systems analysis (including consulting with users) to determine hardware, software or system functional specifications; or
2. computer hardware design, development, documentation, analysis, creation, testing or modification (including prototypes); or
3. computer software design, documentation, testing, creation or modification.
For more information on the Computer Professional Exemption From Overtime, See, California Overtime Laws Pertaining To California Computer Programmers and Software Engineers.
If a worker agrees to work as an independent contractor, is he or she still entitled to overtime pay?
If a worker is misclassified as an independent contractor, when in fact that worker should be classified as a non-exempt employee, the worker is entitled to overtime pay. California employers often try to avoid paying overtime wages by classifying an employee as an ‘independent contractor.’ But many workers who are treated as ‘independent contractors’ and given a 1099 actually are entitled to receive not only overtime compensation, but a host of other benefits. The legal distinction between who is an employee and who is an independent contractor depends on the extent to which the employer dictates the terms and conditions of the job; simply treating a worker as an independent contractor, or having the worker sign an agreement saying they are an independent contractor does not excuse the employer from paying overtime and regular wages.
*California Law on Meal and Rest Periods
In California, Labor Code §512 provides that an employer must provide each employee with a 30 minute (minimum)uninterrupted off-duty meal period for every work period that exceeds 5 hours, but permits the employer and employee to agree to waive the meal period in writing if the workday is not more than six hours. Employers must also provide a second 30 minute (minimum) uninterrupted off-duty meal period if the workday will exceed ten hours, but again permits the employer and employee to agree to waive this second meal period if: (a) the total workday is not more than twelve hours and (b) the first meal period was not waived.
In addition to the required meal period(s), a California employer must also provide each employee with a 10-minute rest period (“break”) for every 4 hours worked, or major fraction thereof which the California Supreme Court has defined as more than two (2) hours. California employers must therefore provide a 10-minute rest break to all nonexempt employees who work more than three and one -half (3 ½) hours but less than six (6) hours in a day. Two 10-minute rest breaks are required for nonexempt employees who work more than six hours, but less than 10 hours in a day. Three 10-minute rest breaks are required for nonexempt employees who work 10 to 14 hours in a day. Employees who work less than 3 ½ hours in a work day are not entitled to a rest break.
A question arose as to whether the employer must offer the required meal and rest breaks, or actually ensure their employees take the required meal and rest breaks. In Brinker Restaurant Corp. v. Superior Court, the California Supreme Court held that while employers cannot impede, discourage or dissuade employees from taking meal and rest breaks, employers need only provide employees with an opportunity to take their uninterrupted off-duty break, and are not required to ensure they are in-fact taken.
According to California Labor Code §512, the employer must provide an initial uninterrupted 30-minute meal break “no later than the end of an employee’s fifth hour of work” and a second 30-minute meal period “no later than the end of the employee’s 10th hour of work.” According to the California Supreme Court, neither the Labor Code nor IWC Wage Order No. 5 “impose [any] additional timing requirements.”
Although the California Labor Commissioner has long taken the position that the meal period should be taken as close to the middle of a shift as is possible and that a second meal period must be provided no later than five hours after the end of a first meal period, the California Supreme Court in Brinker disagreed. According to the Court, meal periods can be provided early in a shift, even during the first hour of work and even before the first rest break.
Pursuant to California Labor Code §226.7, for each workday an employer fails to provide an employee with the required meal or rest period in compliance with California Labor Code §512, the employee is owed one additional hour of pay at the employee’s regular rate. On-duty meal periods are permitted only in limited circumstances.
Can the employer require an employee to work through lunch? Can an employee waive lunch to leave early?
California Labor Code §512 requires all California employers to provide their employees who work more than 5 hours in a day a 30-minute uninterrupted meal period during which the employee is relieved of all duties. The employee can only waive the meal period if the employee’s works no more than 6 hours in a work day. In very limited circumstances an employer is allowed to provide a paid “on duty” lunch break. To provide a paid “on duty lunch break, the employer must: (1) prove that the nature of the work prevents the employee from being relieved of all duties (e.g. the employee is the only worker in a kiosk or the only security guard on site); and (2) have the employee sign an agreement consenting to an “on duty” paid meal period and advising the employee that she or he may, in writing, revoke the agreement at any time.
Does the employer have to pay an employee for an on-duty meal or lunch?
California employers are required to pay the employee at the employee’s regular rate of pay for any on-duty meal period. Unless the employee is relieved of all duties during the required 30 minute meal period, the meal period is considered “on duty.”
Can the employer require an employee to stay on the premises during the meal period?
Yes, so long as the employee is relieved of all work duties, or falls into the exception that permits an employer to provide “on duty meal periods.” However, if the employer requires an employee to stay on the premises, the employer must pay the employee his or her regular rate of pay for the meal period and provide the employee with a break room in which there is a table and chair(s), refrigerator to store meals and a microwave to warm food and beverages. Minor exceptions to this general rule exist under IWC Order 5-2001 for healthcare workers.
What is the penalty if an employee fails to take their required meal break?
Labor Code §226.7 provides that if the employer fails to provide the required 30-minute meal period to any employee who works 6 or more hours a day, the employee is entitled to one additional hour of regular pay for each day the employee worked at least 6 hours and the meal period was not provided. The additional hour is not counted as hours worked for overtime calculation purposes. If your employer fails to pay the additional one-hour’s pay, you may file a wage claim with the Division of Labor Standards Enforcement (DLSE) also known as the Labor Commissioner.
*California Laws on Pay Days and Pay Periods
In California, all non-exempt employees must be paid their wages at least twice a month on days designated in advance by the employer as “regular paydays”. California Labor Code §207 requires the employer to establish a regular pay day and to post a notice that shows the day, time and location of payment. Pursuant to California Labor Code §204, wages earned between the 1st and 15th of any calendar month must be paid on or before the 26th day of the month; wages earned between the 16th and last day of the month must be paid on or before the 10th day of the following month
An employer may also opt to pay its non-exempt employees weekly, bi-weekly or semi-monthly so long as payment is made within seven days of the end of each pay period. If an employer is closed on a payday due to a recognized holiday, payment may be made on the next business day.
Employers may pay exempt employees (e.g. executive, administrative and professional employees) once a month on or before the 26th day of the month.
If an employee fails to submit a time sheet, does the employer still have to pay wages?
Even when an employee fails to turn in a time card or time sheet, the employer remains legally obligated to pay the employee on the established payday.
If the employer fails to pay the employee on the regularly scheduled payday, what can the employee do?
The employee may contact the Division of Labor Standards Enforcement (DLSE) and explain that the employer is not paying the employees on the regularly scheduled paydays. The DLSE will contact and explain the law to the employer. Additionally, the employer’s failure to post the payday notice required by Labor Code §207, and failure to pay wages in good funds on the regular designated paydays as prescribed in Labor Code §§ 204, 204b, 205, and 209, respectively, is a misdemeanor. See, Labor Code §215.
*Payroll and Allowable Deductions in California
In California, every employer must provide its employees with an itemized statement of wages. This itemized statement, which should appear on the pay stub, must state the following:
1. Employee’s name and last four digits of the employee’s social security number;
2. Employer’s name and address;
3. Dates for which the employee is being paid;
4. Gross wages earned;
5. Net wages earned;
6. If the employee is non-exempt with hourly pay, then total hours worked;
7. Applicable hourly rate(s) and the number of hours worked by the employee at each rate (standard, time and a half, or double time); and
8. All deductions taken.
If an employer fails to provide the appropriate itemized wage statement, the employer may be fined $250.00 per employee for the first violation and $1,000 per employee for subsequent violations. However, the penalty for the first violation may be waived if the employer can show that the error occurred due to a clerical error, or inadvertent mistake.
California Labor Code Sections 221, 224 and 300 prohibit a California employer from deducting from an employee’s wages any debts owed by the employee unless: (1) the law requires it (e.g. taxes, wage garnishment ordered by a court); or (2) the deduction was pre-authorized by the employee in writing and then only if the deduction relates to insurance premiums (e.g. health, life, etc.), hospital or medical dues, benefit plan contributions (e.g. 401K), or the deduction was a charge back on advanced unearned commissions. See also, Steinhebel v. Los Angeles Times Communications, LLC, 126 Cal.App.4th 696 (2005).
If an employee fails to submit a timecard, can the employer delay paying the employee his or her wage?
An employer is obligated to pay the employee on the established payday regardless of whether or not the employee submitted a timecard. There are no exceptions. The employer must pay all of the wages it reasonably knows are due for the employee’s regularly scheduled work period.
Is it legal for an employer to dock an employee’s wages $20 for coming to work late?
The answer depends on how much you earn and how late you were. California Labor Code §2928 allows an employer to deduct a half hour’s wage from an employee’s paycheck if the employee is late to work by less than 30 minutes. Pursuant to the same code, if the employee is more than 30 minutes late, the employer may deduct the amount the employee would have earned during the time period the employee was absent.
For example, if an employee earns $10 per hour and is 10 minutes late, the employer may deduct $5 from the employee’s paycheck. If on the other hand, the employee is 45 minutes late, the employer can deduct $7.50 from the employee’s paycheck (the amount the employee would have earned during those 45 minutes).
*California Holiday and Vacation Pay Laws
While this may come as a surprise to some, California law does NOT require the payment of Holiday Pay or Vacation Pay. However, if your employer does offer either they must comply with various state laws.
Hours worked on holidays, Saturdays, and Sundays are treated like hours worked on any other day of the week. In California, there is no law that requires an employer pay an employee a special premium for work performed on a holiday, Saturday, or Sunday. California employers are merely required to pay the overtime premium required for work performed in excess of eight hours in a day or 40 hours in a week.
Similarly, there is no California law that mandates a California employer to offer their employees either paid or unpaid vacation time. However, if an employer does have an established vacation policy, or provides an employee offer letter, or agreement, providing for a paid vacation, then California law does dictate how that employee may take or use the vacation time. California law treats earned vacation time as wages, and as such provides that vacation time is earned, or vests, as labor is performed. For example, if an employee is entitled to two weeks of vacation (10 work days) per year, after six months of work the employee will have earned five vacation days which cannot be forfeited, even upon termination of employment. Pursuant to California Labor Code Section 227.3, all earned and unused vacation must be paid to the employee on the employee’s final day. Although earned vacation time cannot be forfeited, an employer can place a reasonable cap on the amount of vacation benefits that may accrue.
If an employer closes his business on a holiday, are the employees entitled to wages for that day?
Absent a contractual agreement to the contrary, no. Even if you would have normally been scheduled to work on the holiday, your employer chose to give everyone the day off. The employer has the absolute right and discretion to give the employees the day off, pay them their regular rate of pay for hours worked, or a premium rate. Regardless of what your employer chooses to do, the determination as to whether overtime pay is due is based upon hours actually worked, not the hours for which you are paid.
Can an employer have a vacation policy only for full time employees?
An employer’s vacation plan/policy may exclude certain classes of employees, such as part-time, temporary, casual, probationary, etc. To avoid any misunderstandings in this area, however, the employers policy should clearly state which employee classification(s) are excluded.
Is a vacation policy that states that all vacation time must be used by the end of the year or its forfeited legal?
Under California law, earned vacation time is considered wages, and vacation time is earned (vests) as work is performed. Vacation pay accrues (adds up) as it is earned, and cannot be forfeited, even upon termination of employment. Suastez v. Plastic Dress Up, 31 C3d 774 (1982). You can either file a wage claim with the Division of Labor Standards Enforcement (Labor Commissioner), or you can file a lawsuit in court against your employer to recover the lost wages. Additionally, if you no longer work for this employer, you can make a claim for the waiting time penalty provided by California Labor Code §203.
Can an employer force the employees to take their vacation at a particular time?
A California employer does have the right to manage its vacation pay responsibilities, and one of the ways it can do this is by controlling when vacation can be taken and the amount of vacation that may be taken at any particular time.
*California Law on Tips and Gratuities
California Labor Code §351 prohibits an employer (the owner, managers and supervisors) from collecting, taking or receiving, in whole or in part, a tip or gratuity left by a patron of its business for an employee. Labor Code §351 further provides that the employer must pay the employee the full amount of the tip as indicated on the patron’s credit card. The employer may not deduct any credit card processing fees or costs from the employee’s tips, nor can the employer deduct lost revenue from a server’s paycheck if a patron leaves without paying.
California law allows the owner of a restaurant to require all employees to pool, or share, their tips with the other servers, host(ess), bartenders, bus boys and the kitchen staff who provide direct table service, or assist the employee providing direct table service. On March 27, 2009, the California Court of Appeal in Etheridge v. Reins International California, Inc. held that an employer’s mandatory tip-pooling policy that requires tips to be shared with the kitchen staff, even if they do NOT provide direct table service does not violate Labor Code 351 and is enforceable. Employees who are NOT permitted to share in the tip pool include owner(s), manager(s), and supervisor(s) of the business, even if they provide direct table service to a patron.
*Payment of Final Wages
California law requires employers to remit the payment of final wages, including all accrued vacation, within specific time periods and in a specific manner.
If the employee is fired, the employer must pay the employee’s final wages and all accrued vacation time immediately at the time and place of termination. (See, Labor Code § 201 and § 227.3). However, if the employee is engaged in the production of motion pictures and the employee’s employment was irregular and thus requires special computations to ascertain the amount due, the employer must remit payment of the final wage by the next regular payday. (See, Labor Code § 201.5).
If the employee gives at least 72 hours’ notice of his or her intention to quit, and quits on the day given in the notice, the employer must pay the employee’s final wages and accrued vacation time at the time of quitting. (See, Labor Code § 202). If the employee quits without giving 72 hours’ notice, the employer must pay the employee’s final wages within 72 hours of quitting. Payment should be made available at the place of employment, unless the employee requests that the final pay be mailed to a designated address. In such a case, the date of mailing will be considered the date of payment. (See, Labor Code § 202 and § 208).
If during employment, the employee authorized direct deposit of his or her wages to the employee’s account, that authorization is immediately terminated when the employee is fired or quits. Employers must follow the rules above, unless the employee voluntarily authorizes that final deposit and then only if the employer makes the deposit within the required timeframe.
An employer who willfully fails to pay wages due within the required timeframe may be assessed a waiting time penalty of up to 30 days’ pay for each calendar day the employee’s wages remain unpaid. (See, Labor Code § 203). The waiting time penalty is calculated by multiplying the daily wage rate by the number of calendar days up to 30. (See, Mamica v. Barca (1998) 68 Cal.App.4th 487.) An employee will not be awarded waiting time penalties if the employee avoids, or refuses, to receive payment of the wages due OR IF a good faith dispute exists concerning the amount of the wages due. Even if there is a dispute, the employer must pay, without requiring a release, whatever wages are due and not in dispute. If the employer fails to pay what is undisputed, the “good faith” defense will be defeated whatever the outcome of the disputed wages. (See, Labor Code Section 206).
*Collecting Unpaid Wages, Overtime, and Penalties
Employees in California have several choices when considering how to collect unpaid wages, overtime compensation, penalties for missed meal periods and rest breaks, and a host of other Labor Code violations.
Option No. 1. Negotiation and Settlement
One of the most effective approaches is to negotiate directly with the employer. Informal negotiation is often the fastest way to settle an unpaid wage claim. Many employers, when properly advised of the law, the potential penalties they face, and the costs of defending a wage claim, will settle a wage claim.
Option No. 2. File a wage claim with the Labor Commissioner – Division of Labor Standards Enforcement
A wage complaint can be filed against a former employer for any unpaid wages or overtime due for work performed in the last three (3) years. If the employee’s unpaid work goes back more than three (3) years, the employee cannot collect on that part of the claim. Cases that are filed with the Labor Commissioner are much less formal than a traditional lawsuit, and are often heard within 90 days.
Although we do not recommend employees do this on their own, you can file a wage claim with the Labor Commissioner by completing a wage claim form (.pdf) and filing it with the Division of Labor Standards Enforcement (DLSE) at the office nearest the employee’s place of employment. A list of the local offices is located here. After your claim is completed and filed with the DLSE, it will be assigned to a Deputy Labor Commissioner who will determine, based upon the information presented in your claim, if your case should proceed or be dismissed. If the Labor Commissioner decides to proceed, the parties will be notified by mail of the date, time and place of the conference hearing. The purpose of the conference is to determine the validity of the claim, and to see if the claim can be resolved (settled) without a hearing. If the claim is not resolved at the conference, the matter will either be set for a hearing. At the hearing the parties will present their evidence and witnesses, just as they would in a regular court. After the hearing, the Labor Commissioner will issue an Order, Decision, or Award (ODA) which it will serve on all parties. Either party may appeal the decision to a civil court, but the decision is binding if not appealed. If the employer appeals the Labor Commissioner’s decision, the DLSE will represent any employee who is financially unable to afford counsel in a civil court proceeding.
Option No. 3. Filing a claim in Superior Court
An employee can file a lawsuit for back owed wages, penalties, and other Labor Code violations in Superior Court. In some cases, filing a lawsuit in Superior Court may be the better course of action as there are certain penalties that are available in a regular court that cannot be recovered in a case heard by the Labor Commissioner.
Option No. 4. Filing A Class Action Lawsuit On Behalf of All Employees
When an employer has a large number of employees and has committed multiple wage and hour violations, a class action lawsuit may result in significant damages.
ESSENTIAL DISTINCTIONS BETWEEN WORKER’S COMPENSATION AND STATE DISABILITY BENEFITS
What is the difference between workers’ compensation benefits and State Disability Insurance (SDI) benefits?
DI is a component of the SDI program. SDI pays a weekly benefit when an injury or illness is NOT caused by or related to your work. DI benefits are paid for a temporary period of time only. Workers’ compensation helps workers when their injury or illness is work-related. Workers’ compensation may also pay medical bills, benefits for temporary or permanent disabilities, and retraining benefits.
If hurt at work, can you still file for Disability Insurance (DI)?
You can file a DI claim, but usually you cannot be paid both workers’ compensation and DI benefits for the same period of time except in limited situations. For example, we may pay interim benefits if your employer or your employer’s workers’ compensation insurance carrier denies or delays workers’ compensation payment, or we may also pay the difference in rates if your workers’ compensation benefits are less than your DI benefits. If SDI does pay you benefits while your workers’ compensation case is pending, we will file a lien to recover those benefits when you resolve your workers’ compensation case.
To pursue an injury as a work-related disability, who can you talk to?
Your physician/practitioner may be able to help you determine if the cause of your disability is work-related. If you believe you have suffered a work-related disability, you must report it to your employer and have your physician/practitioner submit a medical report to your employer’s workers’ compensation insurance company.
An appeal with the Workers’ Compensation Appeals Board (WCAB)–What is it and what does it do?
If you, your employer, or your employer’s workers’ compensation insurance carrier disagrees over issues regarding your workers’ compensation claim and you wish to appeal that disagreement, contact the WCAB, the California state agency through which you file your appeal. A judge from the WCAB will hear both your side and your employer’s side of the issue and make a determination regarding your case. The information and Assistance Officer at the WCAB can provide more information about the workers’ compensation appeal process and your right to file an appeal.
If you are receiving rehabilitation benefits (or maintenance allowance), can you still get DI benefits?
If you are receiving Temporary Disability, Vocational Rehabilitation Temporary Disability, or Maintenance Allowance from your employer’s workers’ compensation carrier, you generally cannot receive DI benefits. However, if your workers’ compensation benefits are less than your DI benefits, you may be able to receive the difference between the two rates. Contact SDI for further information.
WHEN, WHAT AND HOW YOU SHOULD RELEASE EMPLOYEE RECORDS
California law, Labor Code section 1198.5, currently allows employees to inspect their personnel files and receive a copy of any document that was signed by the employee. Now, A.B. 2674, which takes effect on January 1, 2013, expands the right to review personnel files, and creates some new obligations for employers. Here is a summary of the new provisions.
Records Request Procedures
A.B. 2674 specifies that employees, former employees, or a representative designated in writing by the employee or former employee, may request to inspect or receive a copy of personnel records the employer maintains relating to the employee’s performance or to any grievance concerning the employee. The request for inspection and/or copies must be in writing. If an employee requests copies, the employer can require the employee to pay the actual copying costs. Note that under prior law, employees could request copies only of personnel documents they had signed.
The new law allows employers to designate an individual to whom requests must be made. Also, employers are required to develop a form for employees to use to make an inspection or copy request. However, employees do not have to use the form as long as their request is in writing.
The right to inspect or obtain copies does not apply to employees covered by a collective bargaining agreement that provides procedures for inspection and copying of personnel records, provided the agreement also provides premium wage rates for all overtime hours worked and a regular rate that is at least 30 percent more than the state minimum wage.
Responding to Requests
Until now, section 1198.5 has required only that employers respond to requests “within a reasonable period of time.” The new law, however, imposes strict deadlines and requirements, as follows:
• Current employees
When the employer receives a written request, the employer must allow the inspection or provide copies, as applicable, no later than 30 calendar days after receipt of the request. The employee and employer can agree to extend this deadline, but only up to five additional days.
The records must be made available for inspection, or a copy of the records must be furnished, at the place where the employee reports to work, unless the employer and employee agree on another location. The employer is not required to make the records available for inspection at a time when the employee is supposed to be working. However, if the employee is required to inspect or receive a copy at a location other than where he or she reports to work, the employee cannot suffer any wage loss for that time.
An employer is not required to comply with more than 50 inspection and/or copy requests filed by a representative of one or more employees during one calendar month.
• Former employees
An employer is only required to comply with one request per year from a former employee. The request must be in writing and the employer has 30 calendar days to produce the records for inspection or provide copies, at the location where the employer stores the records unless the parties agree in writing on another location. The former employee can also request a copy by mail, but must pay the actual postage.
If the former employee was terminated for a violation of law or an employment-related policy involving harassment or workplace violence, the employer may comply with the records request either by mailing a copy or making the records available for inspection at a location other than the workplace that is within a reasonable driving distance of the former employee’s residence.
An employer may redact the name of any nonsupervisory employee contained in the personnel records before providing them to the employee or former employee. Furthermore, an employer may take “reasonable steps to verify the identity” of a requestor, although the statute does not specify what amounts to reasonable steps.
If a current or former employee files a lawsuit that relates to a personnel matter, the right to inspect or receive copies ceases while the lawsuit is pending.
Recordkeeping – and Penalties
Employers must retain copies of an employee’s personnel records for at least three years after termination of employment.
Violations of the new law carry a penalty of $750. In addition, a current or former employee can bring an action for injunctive relief and recover attorney’s fees and costs.
What’s In a “Personnel File”?
Section 1198.5 specifies two categories of records that employers must make available to employees or former employees in personnel files: 1) records relating to an employee’s performance and 2) records relating to any grievance concerning the employee. The California Labor Commissioner has broadly interpreted these categories to include, for example, the employment application, performance reviews, attendance records, and other records that are used to determine an employee’s qualifications for promotion, additional compensation or disciplinary action, including termination.
Section 1198.5 also specifies categories of records that an employee or former employee does not have the right to inspect or copy: letters of reference; records that relate to an investigation of a possible criminal offense; ratings, reports or records obtained prior to employment, prepared by examination committee members, or obtained in connection with a promotional examination. Note, too, that other laws specify types of records that should be retained separate from personnel files, such as medical information.
Suggested Compliance Actions
Recommended steps that employers can take to ensure compliance with the revised law by January 1, 2013 include:
• Develop a request form for inspection or copying of personnel records.
• Update employee handbook provisions that cover personnel records.
• Educate human resources and supervisors on the new procedures for responding to requests.
• Designate company representatives responsible for responding to requests, and ensure that all requests go through those individuals.
• Ensure that personnel files contain only appropriate materials, and that human resources and supervisors are aware of what should – and should not – be in personnel files.
CA SEXUAL HARASSMENT LAW
A Silicon Valley start-up founder tells a subordinate that she will get a promotion if she agrees to have dinner with him. A programmer in Los Angeles posts photos of women in string bikinis around his cubicle where coworkers can see them. Which of these scenarios involve sexual harassment? Both? Neither? This article will help you understand what type of conduct is illegal sexual harassment in California.
WHAT IS ILLEGAL SEXUAL HARASSMENT IN CALIFORNIA?
In California, as in most states, sexual harassment is a violation of law. California law prohibits sexual harassment of all types in employment and requires employers to train supervisors on how to prevent and deal with sexual harassment.
Under the California Fair Employment and Housing Act, sexual harassment in employment takes two forms: quid pro quo (literally, “something for something”) harassment and hostile work environment harassment.
QUID PRO QUO HARASSMENT
Quid pro quo harassment occurs when a supervisor, either expressly or impliedly, requires a subordinate to submit to sexual advances by threatening the subordinate with an adverse employment action, such as a bad review, demotion, or termination. For example, the Silicon Valley start-up founder mentioned above has engaged in quid pro quo harassment by conditioning a promotion on the subordinate’s agreement to go on a social date.
Quid pro quo harassment can only be committed by a supervisor, manager, or another employee who is in a position to take some tangible employment action against the victim. Coworkers who are on equal footing and who demand sexual favors are not engaging in quid pro quo harassment. However, they may be creating a hostile work environment, as defined below.
HOSTILE WORK ENVIRONMENT HARASSMENT
The other type of sexual harassment recognized under California law is called hostile work environment sexual harassment. Unlike quid pro quo harassment, any employee can create a hostile work environment. With this type of harassment, there doesn’t need to be the threat of an adverse employment action. Instead, the harasser engages in unwelcome conduct, based on sex, which creates a workplace that is intimidating, hostile, or offensive to a reasonable person.
The conduct might be specifically targeted at an individual, but it doesn’t need to be. For example, the programmer in the introduction may be creating a hostile work environment by posting photos that others find offensive. For there to be a hostile work environment, there are several elements that must be met.
Based on Sex
While the stereotype of sexual harassment is a lecherous male employee subjecting a female employee to sexual innuendo or advances, harassment covers a much wider range of conduct. Harassment includes any conduct based on “sex,” which in this context means gender. As a result, the conduct does not need to be sexual in nature to constitute harassment. In one California case, the court found that male workers on a construction site created a hostile work environment for female coworkers by throwing tools at them, hiding their tools, and otherwise bullying them because of their gender.
An employee doesn’t have to be the direct target of the harassment to have a hostile work environment claim. A male employee who observes another male employee engaging in sexually harassing conduct may have his own claim of hostile environment sexual harassment.
To be illegal, the conduct must also be unwelcome. However, “unwelcome” is not the same as “nonconsensual” under California sexual harassment law. In other words, even if the victim goes along with the harassment, the conduct is still considered harassment if he or she found the conduct unwelcome. Many employees feel they have no choice but to “consent” to offensive conduct in the workplace for fear of losing their jobs.
An employee complaining of harassment must actually have found the challenged conduct unwelcome, though. For example, if an employee readily participates in telling sexual jokes, he or she will have a difficult time proving that he or she actually found the jokes by others to be unwelcome.
Offensive to a Reasonable Person
In addition to actually being unwelcome and offensive to the complaining employee (called the “subjective standard”), the alleged sexual harassment must also be objectively offensive. This means that it must be of a type that would have offended a reasonable man or woman standing in the victim’s shoes. The reasonable person standard takes into account the entire context of the victim’s circumstances. If, for example, the victim of sexual harassment had previously suffered a sexual assault and thus experienced greater distress from on-the-job harassment, her history of assault would be taken into consideration when deciding whether the conduct would be offensive to a reasonable person.
Severe or Pervasive
California law defines sexual harassment as conduct that is either so severe or so pervasive that it creates an abusive working environment. Under this definition, a single severe act, such as a physical assault, can amount to sexual harassment. However, more often, sexual harassment is based on multiple acts occurring over time, such as daily offensive comments or jokes, which are pervasive enough to taint the workplace.
Employer Training Requirements
California law requires larger employers to hold sexual harassment training on a regular basis. Under the Fair Employment and Housing Act, employers with 50 or more employees must provide two hours of sexual harassment training every two years to supervisory employees. Employers must also train newly-hired supervisors within six months of hire.
In addition, as of January 1, 2015, California requires employers to provide training on how to prevent “abusive conduct.” This training is designed to reduce bullying in the workplace that is not based on gender or another protected class (and therefore not illegal), but harmful to employees nonetheless.
If a covered employer fails to comply with these training requirements, that fact may be raised later in a sexual harassment lawsuit to show that the employer did not take reasonable steps to prevent and/or correct sexual harassment. This can undercut the employer’s defense to the harassment claim. More importantly, training can cut down on harassment in the workplace and increase the likelihood of supervisors stepping in to nip it in the bud. This will not only create a more productive and happy workplace; it will also reduce the chances of sexual harassment lawsuits.
EMPLOYMENT LAW PROCRASTINATION
If you’re like most business owners, you’ve got a huge list of tasks that stay perpetually on the back burner. You know, like fixing the filing system that currently consists of two piles labeled (at least in your mind) “Hot” and “Procrastinate.” Or addressing that long-neglected employee problem. Or bringing your embarrassingly outmoded website up to date. Now’s the time to tackle those tasks with a vengeance, because leaving your business problems behind in 2015 is the best way to start 2016 off with a clean slate.
If you’re feeling overwhelmed, take a deep breath and keep reading. I’ve put together a checklist of items that every business owner should take a look at now to ensure they won’t be greeting the same problems in 2007. Here it is:
- Review all your systems from top to bottom. Carefully examine what’s working and what’s not. Decide where the problems are, and figure out what can be fixed. You might be able to fix them yourself, or you might need outside guidance. Maybe you need a computer expert to help you use your technology more efficiently, or maybe you need a financial expert to improve the way you do your books. Whatever you do, don’t assume anything. Don’t assume that just because you’ve had a certain system in place from day one that it’s still adding value to your business or your customers. A system review can be an eye-opening experience for business owners–they’re usually surprised to find their business has fallen into habits that are hindering them from being more successful.
- Review all your vendor contracts. Take a close look at how much business you’re doing with each vendor. Are you getting the best rates based on how much you’re working together? Is the relationship mutually beneficial for you and for them? If not, don’t be afraid to make a change. On the other hand, if you’re happy with your vendors, tell them! Let vendors know you want to create a great relationship with them. They’ll appreciate that you’re taking the time to make sure they’re happy in the relationship, too. Let them know you want to be their favorite customer.
- Determine who your best customers are. You may be surprised to find out that your best customers aren’t who you think they are. Examine all your customers through a profitability lens. Just because you always seem to be doing something for certain customers doesn’t mean they’re the one who are the most profitable. During my own end-of-year review, I often find that my needy customers and my most profitable customers are two different groups. Of course, you should treat all customers well–but when you find out who your best ones are, you’ll want to really give them the VIP treatment.
- Touch base with your best customers. Now that you now who they are, be sure to tell them you appreciate their business and ask if there’s anything you can improve on or do differently to help them grow their business. I always like to send out an end-of-the-year letter to my customers. It’s a quick, easy way to let them know we care about their needs and to encourage them to give us constructive feedback.
- Hold annual performance reviews. Discuss with your employees what they can do to help the company run more smoothly. Also take the opportunity to find out what they feel most passionate about in their work, and ask if there’s another part of the business in which they’d like to play a larger role. I’ve always found that performance reviews are a great time to ask my employees, “What can I do for you?” Their responses often surprise me. Sometimes they want something as simple as getting their chair fixed, and sometimes they request something that I simply can’t do. Regardless, always be honest with them, and take the time to listen to their concerns one on one.
- Engage your employees as partners. The best people to help you solve problems, particularly those involving customers, are the ones who deal with them on a daily basis. Your employees are a (possibly untapped) wellspring of ideas about how you can make your customers happier. Hold an end-of-the-year forum designed to get them to share those ideas. Listening to and implementing your employees’ suggestions is a great way to make them feel like valued business partners. It will stoke their passion for what they do and encourage them to work harder in the coming year.
- Do an early spring cleaning! Purge your office. It’s time to get rid of all that stuff you either don’t need or that doesn’t work anymore. Your employees will like working in a cleaner environment–chances are all of you will be happier and more productive. And don’t limit your efforts to the inside of your building. Take a look outside, too. Are there things you could do to make it look nicer? You might even freshen things up with a new coat of paint or some potted plants. I’m a firm believer that our mental processes are influenced by our external environment. It’s depressing to be surrounded by clutter. Clean up, and everyone may enjoy a boost in energy and creativity.
- Review your marketing campaign. The end of the year is a great time to take a look at which marketing efforts are driving business and which aren’t. Don’t hesitate to make changes if you think your current efforts aren’t paying off. Keep in mind that a lot of ads will automatically renew, so if you have an ad you don’t think is helping your business, you’ll want to make a change before you’re committed to running it for another year.
- Overhaul your website. In the same way that retail stores move around their floor sets, you need to make changes to your website to keep people coming back. Make sure all your information is updated, and post any articles that have recently mentioned your work. And be sure to set your company’s website as the homepage on your browser. That way, every time you go online you’ll notice your website–it serves as a great constant reminder that you need to keep making updates and improvements.
- Take a look at your business cards. Chances are, you’re handing out your business cards to all kinds of people: your customers, your vendors, potential customers, everyone. Make sure all the information is up to date. Are all numbers and e-mail addresses current? Does the layout (colors and design) match that of your website and other business stationery?
- Review your professional magazine subscriptions. Are you really reading all those magazines that get delivered each month? Chances are, you’re letting at least some of them just pile up somewhere in the office (to the detriment of your de-cluttering efforts) or you’re simply throwing them away soon after they arrive (to the detriment of your local landfill). Cancel magazine subscriptions that aren’t valuable to you. It’ll help you save money–every little bit helps–and keep your office tidy.
- Consider technology upgrades. If you need new computers or a new phone system to help things run more smoothly, the end of the year is a great time to make those upgrades. A new computer, phone system or other technology upgrade can make a huge difference in the daily lives of your employees by enabling them to spend less time attending to such problems as computer crashes or lost voicemails and focus more attention on the things that really matter. Just be sure everyone gets the appropriate training on the new technology.
- Review your insurance policies. Often insurance policies are set up and then put to the side, forgotten, until something bad happens. Then, too many business owners discover they’re not adequately covered. Take some time to carefully review all your policies. I know insurance isn’t the most exciting subject in the world, but making sure you have adequate coverage now could save you a lot of money later. This is especially important if changes have taken place in your company during the past year that affect your liability.
- Update your minute books. If your business structured is such that you’re required to keep corporate minutes, then you’ll want to make sure you keep your minute books up to date–it can save you from problems in the future. That’s because, if you ever face a legal problem, the first thing your attorney will want to do is take a look at your minute books. If your books are already updated, it will help you get your legal case off to a good start and will allow your attorney to focus on the important details of the case.
- Meet with your accountant. The end of the year is the perfect time to meet with your accountant to plan your taxes. Discuss with your accountant what you should do with excess cash and take a look at anything you can write off.
This may seem like an overwhelming list, but most of the items are easy to do. And like most things you procrastinate about, these tasks aren’t as painful as you imagine once you jump in and take care of them. Make dealing with your “back burner” list your end-of-year resolution–you’ll be amazed at how liberated you feel if you do. When 2007 rolls around, you’ll tackle your new goals without guilt over all the loose ends you’re neglecting. You might even be surprised at how much more smoothly your company will run next year. It’s a great feeling, and one that you’ll be eager to replicate next year.
DO YOU REALLY HAVE AN EMPLOYEE WORKING IN YOUR BUSINESS? THE UBER CASE.
In a ruling that fuels a long-simmering debate over some of Silicon Valley’s fastest-growing technology companies and the work they are creating, the California Labor Commissioner’s Office said that a driver for the ride-hailing service Uber should be classified as an employee, not an independent contractor.
The ruling ordered Uber to reimburse Barbara Ann Berwick $4,152.20 in expenses and other costs for the roughly eight weeks she worked as an Uber driver last year. While Uber has long positioned itself as merely an app that connects drivers and passengers — with no control over the hours its drivers work — the labor office cited many instances in which it said Uber acted more like an employer. Uber is appealing the decision.
The ruling does not apply beyond Ms. Berwick and could be altered if Uber’s appeal succeeds. Uber has also prevailed in at least five other states in keeping its definition of drivers as independent contractors. Yet the California ruling stands out because officials formally laid out their arguments for why Uber drivers are employees. That could bolster class-action lawsuits against the company in the state. California law expressly requires employers to reimburse employees for business expenses and several suits proceeding against Uber are based on that state law.
Companies like Uber and its rival Lyft, and Instacart, a grocery delivery service, have long faced questions about whether they are creating the right kind of employment opportunities for both the economy and for workers. The technology companies have contended that their virtual marketplaces, in which people act as contractors and use their own possessions to provide services to the public at the touch of a smartphone button, afford workers flexibility and freedom.
Yet labor activists and others have said such roles — with people working as freelancers and having little certainty over their wages and job status — are simply a way for companies like Uber to minimize costs, even as they maintain considerable control over drivers’ workplace behavior. They say that such control is typically the hallmark of an employee relationship, which should bring with it benefits, more stable pay and greater job security.
The classification of freelancers is in dispute across a number of industries, including at other transportation companies. And the debate is set to escalate as the number of online companies and apps like Uber and others rises. Venture capitalists have poured more than $9.4 billion into such start-ups — known as on-demand companies — since 2010, according to data from CB Insights, a venture capital analysis firm, spawning things like on-demand laundry services and hair stylists.
“For anybody who has to pay the bills and has a family, having no labor protections and no job security is at best a mixed blessing,” said Robert Reich, former secretary of labor and a professor of public policy at the University of California, Berkeley. “At worst, it is a nightmare. Obviously some workers prefer to be independent contractors — but mostly they take these jobs because they cannot find better ones.”
The California Berwick ruling noted that the company provided drivers with phones and had a policy of deactivating its app if drivers were inactive for 180 days.
“Defendants hold themselves out as nothing more than a neutral technological platform, designed simply to enable drivers and passengers to transact the business of transportation,” the Labor Commissioner’s Office wrote about Uber. “The reality, however, is that defendants are involved in every aspect of the operation.”
Moreover, Uber said the decision was “nonbinding and applies to a single driver.” The company said individual cases about worker classification in at least five other states, including Georgia, Pennsylvania and Texas, have resulted in rulings that categorize drivers as contractors.
Yet politicians, lawyers and others quickly seized upon the California ruling as one that could have more repercussions for Uber and other similar companies. “Today’s ruling from the California labor regulators demonstrates why federal policy makers need to re-examine the 20th-century definitions and employment classification we’re attempting to apply to a 21st-century work force,” said Senator Mark R. Warner, a Democrat from Virginia.
Consequently, in California, Uber faces class-action lawsuits from drivers saying they were misclassified as independent contractors. Shannon Liss-Riordan, a Boston-based employee and labor rights lawyer who is involved in the lawsuits on behalf of drivers against Uber, said the commissioner’s office ruling would be “helpful” to the suits, which argue drivers should be reimbursed for expenses. “This is a very big deal,” she said. “Uber has been fighting very hard against any decisions like this coming out, and when a fact-finder sat down and looked at the situation, they determined that Uber is an employer.”
Other Uber drivers may also be inspired to follow Ms. Berwick’s example, given that filing a claim with the California labor office is a relatively simple process. “We’ll see if this starts a trend,” said Wilma B. Liebman, the former chairwoman of the National Labor Relations Board. “I wouldn’t be surprised if there’s a flood of similar kinds of claims.”
Uber, co-founded five years ago by Travis Kalanick, who is its chief executive, has come to symbolize the worker debate by virtue of its scale. The company, based in San Francisco, has rapidly upended entrenched taxi and transportation industries with its model of letting people hail rides via their smartphones. Uber, which has collected billions of dollars in venture capital and is in talks to raise more money at a $50 billion valuation, is now operating in more than 300 cities across six continents.
To meet consumer demand, Uber’s driver ranks have swelled. At a presentation celebrating Uber’s fifth anniversary, Mr. Kalanick said the company had 26,000 drivers in New York City alone; 15,000 in London; 22,000 in San Francisco; 10,000 in Paris; and 20,000 in Chengdu, China. “Every single month, Uber is adding hundreds of thousands of drivers around the world,” Mr. Kalanick said.
Uber has run into regulatory hurdles worldwide. In China, local authorities have raided Uber offices in two cities over questions about whether its service is legal because drivers are not licensed. In the United States, cities including Portland, Ore., have claimed that Uber operated an “illegal, unregulated transportation service.” It has also faced protests from cabdrivers.
Ms. Berwick, who lives in San Francisco, may seem like an unlikely David to the Uber Goliath. In the 1980s, she said, she founded Berwick Enterprises, a phone sex-entertainment company that is now an independent money manager, for which she said she did online trading as a volunteer. (The website of the company she started offers to trade on behalf of clients; neither Ms. Berwick nor the firm is registered as an investment adviser with the Securities and Exchange Commission or the Financial Industry Regulatory Authority.)
In a phone interview, Ms. Berwick said she started driving for Uber last summer because she had grown bored working by herself at her computer. But she quickly took issue with Uber’s policy of classifying drivers as independent contractors. “People who drive people are employees,” Ms. Berwick said. “Bus drivers are employees. Paratransit drivers are employees.” In the course of driving for Uber from July to September 2014, working 60 to 80 hours a week, she said, she earned about $11,000 before expenses and taxes.
“If you work it out, if I didn’t get compensated for expenses, I’d be working for less than minimum wage,” Ms. Berwick said. So she said she decided to file a claim against Uber last September with the California labor office, setting in motion the events that led to the ruling.
An interesting side note: Ms. Berwick has a history of being litigious. Since 1991, she and her company have filed at least 20 lawsuits in California. In one case, she sued an employee of a pizza parlor for $500 in damages for leaving restaurant menus on her gate. She was not awarded any damages.
Starting the first of July, the Healthy Workplace Family Act gave California workers access to paid sick leave if they work over 30 days a year. The bill allows employees to earn at least one hour of paid leave for every 30 hours worked.
Just in time for your hay fever, fireworks injuries, and debilitating sunburns, expanded sick leave rights are coming to California workers. Starting the first of July, the Healthy Workplace Healthy Family Act will give California workers access to paid sick leave if they work over 30 days a year. The bill allows employees to earn at least one hour of paid leave for every 30 hours worked.
The new law is expected to expand paid sick leave to millions of workers who previously had little access to leave or no paid sick leave at all. The Act should cover about three quarters of California’s low wage-workers and applies to full-time, part-time, and temporary workers.
The law is expected to improve the lot of millions of workers, labor activists say. When workers are forced to pick between getting paid or going to the doctor, many will come in to work, potentially passing their illness along to others.
Advocates of the new sick leave law hope that paid leave, not summer flu, will become contagious. In California, while paid sick leave begins accruing on the 1st, employees have to wait until their 90th day of employment in order to being taking paid sick days. They can’t be required to find a replacement and the law protects against punishment or retaliation.
Unused paid sick time can roll over between years, but may be capped by employers. For example, employers may limit paid leave to 24 hours or three days in any year, and may cap total accrual at 48 hours or six days when carrying time over from year to year.
Paid sick leave isn’t limited to employees, either. California is one of only four states to require paid sick leave which extends to the care of family members. Any worker can use their leave to take care of a family member or child, so long as that paid sick leave is for the diagnosis, care, or treatment of “an existing health condition or preventative care.” Time may also be used for specific purposes around domestic violence, sexual assault, and stalking.
Employers can expect a bit more of a burden as the law goes into effect. For companies who have yet to institute any paid sick leave, the new paid time off will carry a cost. Employers should start planning to deal with the changes ASAP.
Employers aren’t just required to pay out for sick leave, either. They should get ready to add another poster to their employee informational materials — albeit a small one. They will also have to provide employees with written notice about sick leave rights and track untaken sick leave, making that information available to workers on their pay stubs or similar documents. Failure to do so could result in an investigation by the state Labor Commission, which can result in hefty fines.
Vehicle expenses incurred in commuting between your home and your main or regular place of business are never deductible expenses. This is true even if you have an advertising display on your car, or you use the commute to listen to business books on tape or to phone your clients. However, you can deduct the cost of traveling between your home and a business location that is not your regular place of business. You can take advantage of this rule by planning your day so that you make a business related-stop on the way to work and on the way home, thereby converting a portion of your otherwise nondeductible commute into deductible business travel.
Employers may make salary deductions (without jeopardizing the salaried employee’s exempt status) for one or more full days an employee takes off for the following reasons: •to handle personal affairs •to go on unpaid family or medical leave under the Family and Medical Leave Act (FMLA) •for disability or illness, if the employer has a plan (such as disability insurance or sick leave) that compensates employees for this time off •to serve on a jury, as a witness, or on temporary military leave, but the employer may deduct only any amount that the employee receives as jury or witness fees or as military pay •during the employee’s first or last week of work, if the employee does not work a full week •as a penalty imposed in good faith for infractions of safety rules of major significance (rules that prevent serious danger in the workplace or to other employees) •to serve an unpaid disciplinary suspension imposed in good faith for infractions of workplace conduct rules, but only if the employer has a written policy regarding such suspensions that applies to all employees. Likewise, an employer that makes improper deductions from a salaried employee’s pay can get into big trouble. However, the law contains a “safe harbor” provision, which offers employers some protection if they make improper deductions inadvertently.
Moreover, in California, the general overtime provisions are that a nonexempt (hourly) employee 18 years of age or older, or any minor employee 16 or 17 years of age who is not required by law to attend school and is not otherwise prohibited by law from engaging in the subject work, shall not be employed more than eight hours in any workday or more than 40 hours in any workweek unless he or she receives one and one-half times his or her regular rate of pay for all hours worked over eight hours in any workday, and over 40 hours in the workweek. Eight hours of labor constitutes a day’s work, and employment beyond eight hours in any workday or more than six days in any workweek is permissible, provided the employee is compensated for the overtime at not less than: (1.) One and one-half times the employee’s regular rate of pay for all hours worked in excess of eight hours up to and including 12 hours in any workday, and for the first eight hours worked on the seventh consecutive day of work in a workweek; and (2.) Double the employee’s regular rate of pay for all hours worked in excess of 12 hours in any workday and for all hours worked in excess of eight on the seventh consecutive day of work in a workweek. Consult with an attorney to see if any exceptions apply to your situation, which will be dependent upon the functions you specifically perform as an hourly employee.
REMEMBER: If your employer asks you to sign an arbitration agreement, you can refuse, but that may put your job in jeopardy. Usually, an employer can rescind an employment offer if a prospective employee refuses to sign the arbitration agreement. And an employer can fire an at-will employee who refuses to sign one. Therefore, declining to sign the agreement may indeed jeopardize your job. Some employers will negotiate this point, however, especially if they are more excited about you than they are about arbitration. If you are a highly sought after prospect, or if you are a valued employee in your company, your employer may allow you to refuse to sign rather than give you up.
The Affordable Care Act (ACA), also known as Obamacare, established a number of so-called market reform restrictions on employer-provided group health plans, starting with plan years beginning in 2014. These restrictions generally apply to all employer-provided group health plans—including those furnished by small employers with fewer than 50 workers.
The penalty for running afoul of the market reform restrictions is $100 per-employee per-day, which can amount to $36,500 per employee over the course of a full year. According to the IRS, the penalty can be assessed on employers for simply offering plans that reimburse employees for premiums paid by them for individual health insurance policies. The penalty can also apply to direct employer payments of premiums for employees’ individual health policies. This article explains what small employers need to know about the punitive $100 per-employee per-day penalty.
$100 per-employee per-day penalty generally applies to all employer payment arrangements
Employer payment arrangements have long been a popular way for small employers to help workers obtain health coverage without the hassle and expense of furnishing a full-fledged company health insurance plan. Under an employer payment arrangement, the employer reimburses participating employees for premiums paid for their individual health insurance policies or pays the premiums directly on behalf of participating employees.
Back in 2013, the IRS stated that before-tax employer payment arrangements are generally considered to be group health plans that are subject to the ACA market reform restrictions and the dreaded $100 per-employee per-day penalty. (Before-tax means tax-free to the employee.) With a few limited exceptions, such plans are considered by the government to fail to meet ACA requirements. However, many tax commentators had hoped and expected that after-tax employer payment arrangements would be exempted from the $100 per-employee per-day penalty. (After-tax treatment means the employer payments are treated as additional taxable wages paid to participating employees.) Those hopes were dashed this year when the IRS issued Notice 2015-17. According to the notice, an employer arrangement that reimburses or pays for employee individual health premiums is considered a group health plan that is subject to the $100 per-employee per-day penalty, whether the arrangement is treated by the employer as before-tax (tax-free to the employee) or after-tax (taxable to the employee).
Exception for one-employee arrangements
About the only good news here is that the $100 per-employee per-day penalty cannot be assessed on employer payment arrangements that have only one participating employee. Therefore, your business can still use such an arrangement to reimburse one employee for his or her individual health insurance premiums without triggering the disastrously expensive $100 per-employee per-day penalty.
Note: Under long-standing rules, employer payment arrangements generally must cover all full-time employees in order to avoid running afoul of IRS nondiscrimination provisions. However, the nondiscrimination rules allow employers to exclude workers who: (1) have less than three years of service, (2) have not attained age 25, or (3) meet the definition of part-time or seasonal employees. Therefore, an employer can potentially have more than one employee and still have a one-employee-employer payment arrangement that is exempt from the $100 per-employee per-day penalty.
Temporary penalty exemption for many small businesses expired on June 30
The Supreme Court’s recent ruling upholding the legality of Obamacare premium subsidies in states that don’t run their own health insurance exchanges breathed new life into the ACA and tells us, somewhat definitively, that Obamacare is here to stay. With Obamacare comes a barrage of penalty provisions, including a $100 per-employee per-day penalty on employer payment arrangements. Back in February, the IRS issued a small business — fewer than 50 workers — exemption for this penalty (Notice 2015-17). That exemption expired June 30, 2015. Effective July 1, small businesses that continue to use reimbursement plans will be assessed a $100/day/affected participant. Obviously, the time to get into compliance with the ACA is now.
Temporary relief for S corporations lasts through year-end
Many S corporations have set up employer payment arrangements to cover individual health policy premiums for employees who also own more than 2% of the company stock (more-than-2% shareholder-employees). Under long-standing IRS rules, such reimbursements are treated as additional taxable wages that aren’t subject to Social Security or Medicare taxes. Qualifying more-than-2% shareholder employees can then deduct the premiums on their individual federal income tax returns under the provision for self-employed health insurance premiums. Unfortunately, such S corporation arrangements run afoul of the ACA market reform restrictions and can therefore trigger the punitive $100 per-employee per-day penalty.
Thankfully, IRS Notice 2015-17 exempts such plans from the $100 per-employee per-day penalty for health premiums reimbursed or paid by S corporations between Jan. 1, 2014 and Dec. 31, 2015. Bottom line: through year-end, there is no risk of incurring the penalty for S corporation employer payment arrangements that benefit only more-than-2% shareholder-employees. However, S corporation employer payment arrangements that benefit other employees are still exposed to the penalty.
At present, there is no federal or state law that specifically addresses the sale or use of technologies that track the location of a cell phone or other geolocational data. But there is legislation pending in Congress and California in this area.
Four bills (S. 1212, H.R. 2168, S. 1223, and H.R. 1895) have been introduced in Congress this session to regulate the acquisition and use of geolocational data.
For example, SB 1212 and H.R. 2168 (companion bills) make it a federal crime to intentionally intercept geolocation data pertaining to another person or to disclose or use that information. The bills have a number of exceptions, such as collecting information on another person with his or her consent, collecting information in connection with a theft, and foreign intelligence surveillance. The bills modify the Federal Rules of Criminal Procedure to require a search warrant for a law enforcement agency to acquire geolocation information. They allow a person whose geolocation data is intercepted, disclosed, or intentionally used in violation of the bill to recover civil damages.
Tracking legislation is also pending in California. SB 761 requires the adoption of regulations to require a person or entity doing business in California that collects, uses, or stores certain types of data to provide people with a method to opt out of that collection, use, and storage of such information. The bill has more stringent requirements regarding “sensitive information,” which includes the consumer’s location and any information about the individual’s activities and relationships associated with that location, e.g., what an individual typically does at a given location. An entity that willfully violates the regulations is liable to the affected individual in a civil action for actual damages, with a $100 minimum and $1,000 maximum, plus punitive damages as the court may allow.
By analogy, In United States v. Jones, a majority of the Supreme Court recently concluded that the government conducts a search under the Fourth Amendment when it attaches a GPS device to a car and tracks its movements. The conclusion should be no different when the government tracks people through their cell phones, and in both cases a warrant and probable cause should be required. Therefore, unless you are part of a law enforcement agency and have a warrant to do so, it is usually illegal to track the physical location of an adult person through his or her cell phone without his or her consent. This doesn’t mean that it’s illegal to track a person at all; it just means that you need that person’s permission.
In the end, based upon the current state of the law as well as what appears on the horizon, my recommendations would be as follows: Tracking employees during non-work hours can be an invasion of the employee’s privacy, whether the tracking is done via the employer-owned or employee-owned equipment. When the device tracks non-work time, such as during the evenings, weekends, and when the employee is on vacation, the employer may gain private information about an employee that would be considered an invasion into the employee’s personal privacy. Thus, information collected through GPS monitoring should be focused on an employee’s job performance and disseminated only to employees who have a legitimate business reason for knowing the information. The tracking should be limited to the legitimate business purposes, conducted only during working hours, and provided the company has addressed the employee’s expectation of privacy.
Policies should be carefully drafted to explain the legitimate business purpose, circumstances under which monitoring will take place, notice of the company’s right to monitor employee actions while using Company owned property, the GPS monitoring capabilities of the Company-issued property, and that employees should not have an expectation of privacy while using the same. For employee-owned equipment, employers should have a carefully drafted “Bring Your Own Device” that provides for employee consent for use of the tracking device on the employee’s equipment, and be carefully limited to use only while the employee is working. Make sure the employee signs off on this and you therefore get their permission in writing.
DO YOU KNOW WHEN YOU’RE ENTITLED TO VACATION PAY?
There is no federal requirement that employers give their employees vacation time. This means that employees who have been denied time that they accrued, in the states where payment of accrued vacation is required, must look to those states for enforcement. Currently, 24 states—Alaska, Arizona, California, Colorado, Illinois, Indiana, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Minnesota, Nebraska, New Hampshire, New York, North Carolina, North Dakota, Ohio, Oklahoma, Pennsylvania, Rhode Island (after one year of employment), Tennessee, West Virginia, and Wyoming—and the District of Columbia require that your employer include any unused vacation pay that has accrued (that you would have been entitled to use) in your final paycheck. In the rest of the states, there is no state law that requires your employer to pay you for accrued vacation leave, although your employer may do so voluntarily, or may have to do so if required by a policy or contract.
Vacation pay (including floating holidays and paid time off) constitutes wages under California law. That means they can’t be subject to “use it or lose it” policies, forfeitures, or unreasonable caps on accrual. Except to the extent that a valid collective bargaining agreement provides otherwise, you must compensate terminated California employees for the cash equivalent (at the final rate) of any accrued, unused vacation. If your employer did not include your vacation time in your last paycheck, and refuses to issue another check after the problem is brought to its attention, then you should contact a state government agency and/or a lawyer in your area to help you determine how to proceed. Depending on the amount of vacation time owed, the amount may be too small for a lawyer to pursue a case against your employer on your behalf, but there are state government agencies that may be able to help you, even if you do not have a lawyer.
Again, while there is no legal requirement in California that an employer provide its employees with either paid or unpaid vacation time, if an employer does have an established policy, practice, or agreement to provide paid vacation, then certain restrictions are placed on the employer as to how it fulfills its obligation to provide vacation pay. Under California law, earned vacation time is considered wages, and vacation time is earned, or vests, as labor is performed. For example, if an employee is entitled to two weeks (10 work days) of vacation per year, after six months of work he or she will have earned five days of vacation. Vacation pay accrues (adds up) as it is earned, and cannot be forfeited, even upon termination of employment, regardless of the reason for the termination. (Suastez v. Plastic Dress Up (1982) 31 C3d 774) An employer can place a reasonable cap on vacation benefits that prevents an employee from earning vacation over a certain amount of hours. (Boothby v. Atlas Mechanical (1992) 6 Cal.App.4th 1595) And, unless otherwise stipulated by a collective bargaining agreement, upon termination of employment all earned and unused vacation must be paid to the employee at his or her final rate of pay. Labor Code Section 227.3. The California Legislature, in order to ensure that vacation plans were fairly and equitably handled, provided that the Labor Commissioner was to “apply the principles of equity and fairness” in resolving vacation claims.
There is also the question of what makes an employer “California-based” and whether the ruling applies to employers not headquartered in California but who have California operations. Given this ambiguity, even employers who are not “California-based” but operate in California should consider adjustments to policies and practices, and possibly even corporate structure, in light of recent CA case holdings. In the end, this may cost you some money to continue to fight down the line since you are an out-of-state resident unless you travel here from time to time.
CAN YOU PLACE AN EMPLOYEE ON UNPAID SUSPENSION?
Some employers discipline their employees by docking their pay or putting them on unpaid suspension for violating workplace rules. However, such a policy can create big problems if the employee whose pay is reduced is exempt from overtime — that is, the employee is not entitled to overtime pay because he or she is paid on a salary basis and generally exercises a certain degree of responsibility and discretion in doing the job. Under federal law, exempt employees — those who are not entitled to overtime — must earn at least $455 per week (or $23,660 per year). To be exempt, employees must be paid on a salary basis. This means that the employee’s salary is a fixed amount that doesn’t depend on how many hours the employee works, how much work the employee accomplishes, or the quality of the work. As long as employees do some work during the week, they are entitled to their full weekly pay, unless the time they take off falls into one of the below exceptions:
Employers may make salary deductions (without jeopardizing the employee’s exempt status) for one or more full days an employee takes off for the following reasons:
•to handle personal affairs
•to go on unpaid family or medical leave under the Family and Medical Leave Act (FMLA)
•for disability or illness, if the employer has a plan (such as disability insurance or sick leave) that compensates employees for this time off
•to serve on a jury, as a witness, or on temporary military leave, but the employer may deduct only any amount that the employee receives as jury or witness fees or as military pay
•during the employee’s first or last week of work, if the employee does not work a full week
•as a penalty imposed in good faith for infractions of safety rules of major significance (rules that prevent serious danger in the workplace or to other employees)
•to serve an unpaid disciplinary suspension imposed in good faith for infractions of workplace conduct rules, but only if the employer has a written policy regarding such suspensions that applies to all employees.
These are your options and limitations. See an attorney if you need assistance interpreting these regulations.
FACTORS CONSIDERED FOR DETERMINING ELIGIBILITY FOR WORKERS’ COMPENSATION
Workers’ compensation is compensation provided to employees for injuries sustained during the course of their employment. The question of an individual’s status is an important consideration with respect to workers’ compensation, because a prerequisite for coverage is the establishment of an employer-employee relationship. Specific factors are considered to determine whether an individual is an employee and therefore entitled to workers’ compensation benefits, or whether the individual is an independent contractor (or some other classification) who would be excluded from coverage. This analysis examines factors that fall into four broad areas.
1. RIGHT TO CONTROL
The first area relates to the right to control and examines the factors discussed above, such as whether (1) the person performing the service(s) is provided with clear instructions about the nature of the task and how it will be completed, (2) the individual is integrated into the business, (3) the individual must perform the task or whether it can be delegated, (4) the sequence of the task is dictated by the employer, (5) the employer requires status reports, and (6) the employer reimburses the individual for business and travel expenses.
2. METHOD OF PAYMENT
The second area of consideration relates to how compensation is paid for the performance of services. The payment of a salary on a regular basis in a consistent amount suggests an employer-employee relationship, while a more dynamic payment method that might vary in the amount of compensation, as well as in the timing of the payments, suggests the services are being performed by an independent contractor.
3. LOCATION OF WORK PERFORMANCE AND PROVISION OF MATERIALS
The third set of circumstances relates to where the work is completed and who provides the materials. The analysis here parallels a number of factors listed in the Restatement, focusing on the fact that employees generally work on an employer’s premises and are provided with tools and materials. Independent contractors, in contrast, are more likely to be responsible for securing a workspace as well as the tools and materials necessary to complete a task.
4. RIGHT TO TERMINATE
The final consideration focuses on which party has the power to terminate the relationship and which party would be liable for any resulting damages. If both parties have the right to end the relationship, this suggests an employer-employee relationship. In contrast, two parties who enter into an employer-independent contractor relationship would not have the same option.
For example, an employer who hires an employee to build chairs would likely retain the right to terminate the relationship (subject to the progressive discipline process or whatever terms and conditions govern their employment relationship) if the chairs are not built to his satisfaction. However, this remedy would not be available if an independent contractor is building the chairs. Instead, because the work of an independent contractor is usually governed by contract, the employer’s remedy would be established by the contract. Specifically, the employer might have to provide the independent contractor with the chance to correct the problem, or the employer might be permitted to adjust the negotiated price to account for any substandard work.
Whistleblower retaliation is illegal but ask anyone who filed a False Claims Act case against their employer while still employed and chances are good they suffered from some form of retaliation. Acts of retaliation can range from blacklisting to being shunned by co-workers to termination. One pharmacist who blew the whistle against Walgreens was awarded $1.1 million for the retaliation he suffered.
Sami Mitri was a long time employee of Walgreens. In 2008, he noticed that the pharmacy giant was billing Medicare for 30 day prescription refills but giving patients a 10 day drug supply. Like any good employee, Mitri first took his concerns to management. Instead of thanking him for bringing the problem to light, a manager told Mitri that it wasn’t his “job to report an example of fraudulent billing…to the government.”
Mitri persisted in reporting the overbilling to both management and ultimately to Medicare and the California Department of Healthcare. Although whistleblower retaliation is illegal under both California and federal law, Walgreens terminated Mitri.
The pharmacy giant claimed they fired him because he worked ten minutes past his scheduled shift. The company said it was concerned about overtime. Mitri says that the claimed reason for his termination was a mere subterfuge. Happily, the court agreed with Mitri.
In 2011, a jury awarded Mitri $88,000 for lost wages and $1.1 million on his whistleblower retaliation claim. Instead of paying the award, Walgreens appealed. A federal appeals court later declined to toss out the whistleblower retaliation claim and sent the matter back to the trial court. In December, the court re-imposed the $1.1 million whistleblower retaliation award.
In reinstating the award, the court said every dollar lost to the “serious crime [of Medicare] fraud is a dollar that could have provided medical care to the elderly or disabled.” The court also ruled that punitive damage awards are “supposed to sting” and that Walgreen’s conduct was “reprehensible.”
Congress passed strong whistleblower retaliation laws to insure that folks brave enough to stand up and report fraud don’t have to suffer for their actions. Although Walgreens was able to delay the process for 4 years, justice finally prevailed.
WHAT CAN EMPLOYERS FIND OUT ABOUT ME?
If you’re applying for a job, or want to keep one, you’re going to have to accept that background checks are becoming a part of work life. An estimated 50% of resumes submitted by job applicants contain false or inaccurate information. Bad employees who slip through the hiring process can also create significant legal liability for their employers in the form of lawsuits for negligent hiring, negligent retention, or vicarious liability for employee misconduct. Employers are increasingly finding that their best defense is to conduct thorough background checks into job applicants and existing employees to weed out the potential troublemakers.
Different employers will investigate different things. Some will be more thorough than others. Some will hire an outside investigation firm. Some will do it themselves. Following are the kinds of information about you that employers or their agents might investigate here in California.
Credit Reports. Negative credit information will appear on credit reports for 7 years. For bankruptcies, it is 10 years. Although bankruptcies are public record, employers are NOT permitted to discriminate against you based on them. Credit reports are available from Experian (888) 397-3742, Equifax (800) 685-1111, and TransUnion (877) 322-8228.
Criminal / Arrest Records. Employers can consider criminal convictions only if it’s relevant to the job. Employers in California can review job applicant arrest records ONLY if (i) the arrest(s) resulted in a conviction, or (ii) if the applicant is out of jail but pending trial. Otherwise, arrest records are off-limits. Felonies, misdemeanors and arrests are reportable for 7 years. [Cal. Civil Code §1785.13]. Employers in California can NOT inquire about marijuana convictions that are more than 2 years old. Juvenile criminal records are also off-limits to employers.
Worker Compensation Records. Employers may only use this information if an injury might interfere with the applicant’s ability to perform specific job functions. In California, employers can access these records ONLY AFTER making the job applicant an offer, and they can NOT then rescind the offer based on them [Cal. Labor Code 132a]. However, worker compensation records also show prior employers where applicants had filed prior worker compensation claims. If the applicant failed to disclose any of these prior employers during the application process, this can be grounds for termination. Employers can access worker compensation records by submitting a “Request for Public Records” with the California Workers’ Compensation Appeals Board (WCAB) and confirming that they need the information for legitimate reasons.
References. Employers can speak to references, including past employers, friends, neighbors or associates, about your character, general reputation, personal characteristics, or mode of living. [Cal. Civil Code § 1786(B)(iii)]. California code refers to this as an “investigative consumer report” and imposes special requirements on employers who conduct these. If a former employer makes a false derogatory statement about you, you may have a legal claim against them. Generally speaking, California law protects former employers from liability for defamation if they comment on a job applicant’s job performance or qualifications. However, if they act with “malice, this protection won’t apply. [Cal. Civil Code § 47(c)]. California law also prohibits employers from intentionally interfering with former employees’ attempts to find jobs by giving out false or misleading references. [Cal. Labor Code § 1050]. Most employers don’t want to run the risk of getting sued and are willing only to confirm a job applicants’ dates of employment and position with them.
Medical History. The federal Health Information Portability and Accountability Act (HIPAA) as well as the California Confidentiality of Medical Information Act (CCMIA) both impose strict requirements for preserving the confidentiality of your medical information. In addition, California’s disability discrimination laws [Cal. Government Code § 12940 et seq.] (as well as their federal counterparts, the Americans with Disabilities Act and Title VII of the Civil Rights Act of 1964) prohibit employers from inquiring about your medical condition or mental or physical disabilities. Employers can ONLY inquire about your ability to perform specific job functions and that’s it.
Education Records. Employers can obtain certifications of years of attendance from the educational institutions which applicants list on their resumes by directly contacting them. School records are otherwise confidential and employers can NOT access them without the student’s consent.
DMV Driving/Vehicle Registration Records. Employers can obtain your driving and vehicle registration records without your consent. They are available at the California DMV (800) 777-0133.
Insurance Claims Reports. Available from ISO (800) 888-4476.
Immigration Records. Available by filing Form I-9 with the Bureau of Citizenship and Immigration Services (formerly INS) (800) 375-5283.
Military Records. Employers can obtain your name, rank, salary, assignments and awards without your consent.
WHAT ARE MY RIGHTS?
In the Information Age, employers can get their hands on a LOT of personal information about you the employee or job applicant. But that doesn’t mean you don’t have rights. Federal and state laws exist to protect your privacy from overly-inquisitive employers.
Fair Credit Reporting Act (FCRA)
In 1970, the federal government enacted the Fair Credit Reporting Act (15 U.S.C. §§1681 et seq.) to protect the privacy of consumer information and ensure consumer report accuracy. The FCRA was amended by the Fair and Accurate Credit Transaction Act of 2003 (FACTA) to also address identity theft and medical information privacy.
Most people think of the FCRA as regulating the credit reports you use to apply for credit cards, home mortgages and car leases. But the FCRA does much more. For instance, it also regulates employer background checks on employees.
In particular, the FCRA requires employers to notify you in separate, formal, prior written document that they may conduct a background check on you. If the employer intends to use an outside investigation agency, then the employer must also get your prior written authorization.
If the employer decides to reject your job application or request for promotion or job reassignment, etc., based on a background check that has been conducted by an outside investigation agency, then the FCRA requires the employer do the following:
– BEFORE taking the action against you, the employer must give you a “pre-adverse action disclosure” consisting of a copy of any reports on you, and a copy of “A Summary of Your Rights under the Fair Credit Reporting Act”
– AFTER taking the action against you, the employer must give you an “adverse action notice” consisting of oral, written or electronic notice of the employer’s decision and the fact that it was based on what the background check revealed, contact information for the outside investigation agency used by the employer, a statement that the outside investigation agency was not responsible for the employer’s decision and can’t give specific reasons for it, notice of your right to dispute the accuracy or completeness of the reports on you, and notice of your right to receive additional copies of reports on you from the outside investigation agency within 60 days of your request.
The employer is not required to give you a “pre-adverse action disclosure” or “adverse action notice” if the employer did not use an outside investigation agency but instead conducted the investigation itself.
The Federal Trade Commission (FTC) is responsible for enforcing the FCRA. The FCRA applies in all 50 states.
California Information Privacy Act (CIPA)
California state law takes the minimum employee privacy protections contained in FCRA and builds on them to make them even tougher through the California Information Privacy Act (Cal. Civil Code §§ 1785 et seq.) (CIPA).
Like FCRA, CIPA imposes tougher requirements on employers who retain an outside investigation agency to conduct the background check, versus employers who do it themselves.
If the employer is doing the investigation itself, CIPA requires the employer to give you a checkbox to receive a copy of background reports about you. The checkbox can be contained either in the job application form or in the written notice of the background investigation required by FCRA. If you check the box, a copy of the reports about you must be sent to you within 3 business days after the employer receives them.
If the employer is using an outside investigation agency, however, CIPA requires the employer to first give you a “clear and conspicuous” notice in writing of the “nature and scope” of the background check [Cal. Civil Code § 1786.16(2)(B)(v)]. This enhanced notice isn’t necessary if the employer is doing the background check itself.
If the employer decides to use an outside investigation agency to interview references about you, the employer must also (i) state the purpose of the investigation, (ii) give you contact information for the investigation agency, (ii) give you a summary of your rights to see and copy any reports about you, and (iv) provide you a checkbox which you can check if you want to receive a copy. If you check the box, a copy of the reports about you must be sent to you within 3 business days after the employer receives them.
An important exception: if the employer is doing the background check due to suspicion that you’ve engaged in wrongdoing or misconduct, then CIPA relieves the employer of the requirement to give you notice of and obtain your consent to the background check. [CA Civil Code § 1786.16(2)].
Remember, there’s nothing stopping you from doing your own background check ON YOURSELF. If you’ve been getting turned down for jobs and don’t know why, this might be a good thing to do. In many cases, there is no charge once you’ve proven you are who you say you are. And don’t forget to request copies of your personnel and payroll records from previous employers. If you spot any errors, make sure you get them corrected right away. Among other things, it could be a sign that your identity has been stolen.
Finally, when applying for a job, or if you’ve already been turned down for a job or promotion, make sure you’ve checked the checkbox on your job application, investigation notice, or adverse action notice in order to receive a copy of the background reports about you. Once you receive the reports, review them and correct any inaccuracies you find.
HAVE YOU ESTABLISHED ANTI-HARASSMENT POLICY AND A MEANS TO ADDRESS COMPLAINTS?
Because employers face significant liability for the harassing acts of their supervisors and employees, they should establish and communicate a specific anti-harassment policy to all employees to make it clear that such conduct will not be tolerated. The most effective policies clearly define the types of conduct that constitutes harassment, provide specific examples of the unlawful conduct, and advise all employees such behavior will not be tolerated.
This policy, typically provided by way of a thorough employee handbook, should clearly state that an employee will not be subject to any adverse consequences for alerting the employer to the unlawful behavior. This is significant because federal law provides for a prohibition against workplace harassment based on membership in a particular class, as well as a prohibition for retaliation against an employee who reports such conduct.
Once an employer establishes and implements a policy that prohibits workplace harassment, it should establish a process that employees can access if the policy is violated. This is critical because an employer’s demonstration that it has established a process for the investigation of harassment complaints, in conjunction with an alleged victim’s failure to utilize this process, could be a significant component in an employer’s defense. Federal law provides that if an employee fails to use an established complaint procedure, an employer will not be responsible for a supervisor’s harassing behavior, provided: (1) the harassment did not result in a tangible employment action and; (2) fear of retaliation was not the reason the employee did not utilized the procedure initially. Not surprisingly, the actions of an anti-harassment and/or discrimination policy, as well as a corresponding process to obtain relief, can be used by an individual employee to bolster and support such a claim.
Finally, be aware that all employers should educate their supervisors about the types of behavior that constitute harassment and that it will not be tolerated, while simultaneously instructing them on ensuring that a cooperative response is given to an employee who make such a complaint. California law requires employers to train new hires within the first six months of their employment, and to retrain supervisors at least once every two years. To learn what specifically constitutes harassing or discriminatory behavior and how to maintain policies and training to deal with such behavior, contact WFB Legal Consulting, Inc.—A BEST ASSET PROTECTION SERVICES GROUP, at (949)-413-6535.
ARE YOUR EMPLOYEES EXEMPT OR NON-EXEMPT: DO YOU KNOW THE DIFFERENCE?
Exempt and Non-Exempt Status
Exempt/non-exempt status refers to an employee’s eligibility for overtime pay and certain other legal rights. This status is determined based on applicable law and such factors as the nature of the employee’s work, duties and responsibilities, and level and form of compensation. Non-exempt employees are typically paid by the hour for each hour they work in a pay period and receive overtime pay in accordance with applicable overtime rules. Exempt employees are generally paid a salary intended to compensate fully for all hours worked each week, are not compensated based on the number of hours worked, and do not receive overtime pay.
The High Costs of Misclassification It can be extremely costly to mis-categorize an employee as exempt when he or she really should have been classified as non-exempt.
And, that is true more so now than ever, as the federal government and many states are cracking down on employee misclassification like never before. As two examples of just how costly misclassification can be, personal bankers for a large banking institution obtained a $22 million settlement after filing a lawsuit alleging that they had been misclassified as exempt, and insurance claims adjusters at a large insurance company were awarded more than $90 million in a misclassification lawsuit. Part of the reason liability can be so great is that it can include liability for back wages, taxes, penalties, interest, and attorney’s fees. Plus, cases can reach back several years in most instances. With the stakes at such a high level, it behooves all employers to be extremely cautious when classifying employees.
Why Getting Exempt/Non-Exempt Status Right Is Not Always Easy
There are many different standards for determining an employee’s status as exempt vs. non-exempt. And, it is entirely up to employers to figure out which standards apply. The federal Fair Labor Standards Act (FLSA) and related regulations set forth the federal standards, noting salary and duties tests for executive, administrative, and professional exemptions (as well as others), including the need for the exercise of discretion and independent judgment, and much more. Meanwhile, many states (e.g., California) have their own set of standards that are in some respects similar and in others very different. The trick is that employers have to comply with whichever applicable standard is the strictest, and a variation of just one word from one standard to the next can make a huge difference. Consider, for example, the FLSA’s “primary duties” standard and California’s “primarily engaged in” standard. The two standards are entirely different, yet the words are almost the same.
The Standards Are Extremely Technical
Federal regulations fill pages and pages discussing the meaning of “discretion and independent judgment,” and the “administrative/production worker dichotomy” (about which we will say more below), among other terms. Since most people have not read the regulations, and since many who have read them don’t understand them, there are a number of common misconceptions, as discussed below.
1. Salaried employees are not all exempt: While most exempt employees are required to receive a salary, all salaried workers are not necessarily exempt. This is because in addition to meeting the “salary” and “salary basis” tests, an exempt employee must meet the “duties” test as well. Most employees must meet all three “tests” to be exempt, and for the duties test, the actual job tasks must be evaluated, along with the way the particular job tasks “fit” into the employer’s overall operations. Exempt executive job duties, for example, include tasks such as supervising two or more employees, hiring, firing, or promoting employees, or making job assignments for others. Job titles or position descriptions are not much use here.
2. The most commonly misused exemption: “Administrative Exemption” The “administrative exemption” is the most commonly misunderstood exemption. One of several keys to determining the applicability of this exemption is determining whether or not the employee’s “primary duty is the performance of office or non-manual work directly related to the management or general business operations of the employer or the employer’s customers.”1 (Emphasis added.) It is easy to misinterpret this language, and so the exemption is often misapplied. An example of an exempt administrator could be a buyer for a department store. This employee performs office or non-manual work and is not engaged in production or sales. The job involves work which is necessary to the overall operation of the store — selecting merchandize to be ordered as inventory. It is important work, because having the right inventory (and the right amount of inventory) is crucial to the overall success of the store’s business. The job involves the exercise of a good deal of important judgment and discretion, because it is up to the buyer to select items which will sell in sufficient quantity and at sufficient margins to be profitable.
Some examples of administrative functions include labor relations and personnel (human resources employees), payroll and finance (including budgeting and benefits management), records maintenance, accounting and tax, marketing and advertising (as differentiated from direct sales), quality control, public relations (including shareholder or investment relations and government relations), legal and regulatory compliance, and some computer-related jobs (such as network, internet and database administration). Whether anyone engaged in such functions is an exempt administrator, however, will depend on whether they meet the applicable compensation and duties tests.
To make things even more confusing, because the administrative exemption is designed for relatively high-level employees whose main job is to “keep the business running,” a useful rule of thumb is to distinguish administrative employees from “operational” or “production” employees. Production workers — employees who make what the business sells — are not administrative employees. They are “staff” rather than “line” employees. This distinction, however, can be very difficult to make where high-level employees are involved and where it is not clear whether their work is administrative or production work.
3. College graduates are not necessarily or even likely to be exempt under the “Professional Exemption” Under the FLSA, education beyond a 4-year college degree is usually required to qualify under the professional exemption under the FLSA. Moreover, under the FLSA, an employee’s primary duty must be the performance of work requiring advanced knowledge, or in other words, work which is predominantly intellectual in character, requiring the consistent exercise of discretion and judgment. Here, the advanced knowledge must be in a field of science or learning and customarily acquired by a prolonged course of specialized intellectual instruction.
Typical professions covered under the professional exemption include medicine, theology, accounting, actuarial computation, engineering, architecture, teaching, various types of physical, chemical and biological sciences, pharmacy, and other occupations that have a recognized professional status and are distinguishable from the mechanical arts or skilled trades where the knowledge could be of a fairly advanced type, but is not in a field of science or learning.
In California, however, not only is advanced education usually required, but so is a professional license. Thus, in California, exempt status as a professional is generally reserved for those who are licensed or certified by the State of California and “primarily engaged” in the practice of law, medicine, dentistry, optometry, architecture, engineering, teaching, or accounting — provided the salary test is met.
4. Many highly paid computer professionals may not be exempt To qualify for the computer employee exemption under the FLSA, the following tests must be met:
(a) The employee must be compensated either on a salary or fee basis at a rate not less than $455 per week or, if compensated on an hourly basis, at a rate not less than $27.63 an hour;
(b) The employee must be employed as a computer systems analyst, computer programmer, software engineer, or other similarly skilled worker in the computer field performing the duties described below; and
(c) The employee’s primary duty must consist of:
*The application of systems analysis techniques and procedures, including consulting with users, to determine hardware, software or system functional specifications;
*The design, development, documentation, analysis, creation, testing, or modification of computer systems or programs, including prototypes, based on and related to user or system design specifications;
*The design, documentation, testing, creation, or modification of computer programs related to machine operating systems;
*or A combination of the aforementioned duties, the performance of which requires the same level of skills.
5. In California, employees falling within the computer professionals exemption must be paid at least $39.90 per hour, which translates to a monthly salary of $6,927.75 and an annual salary of $83,132.93 (these figures typically increase every year). In addition, similar to the federal law, California computer professionals must meet stringent duties requirements, including being highly skilled and proficient in the theoretical and practical application of highly specialized information to computer systems analysis, programming, and software engineering.
Both federal and California law expressly exclude from the computer professionals exemption employees who are engaged in the manufacture, repair, or maintenance of computer hardware and related equipment. California law also excludes trainees, employees in computer-related occupations who have not attained the level of skill and expertise to work independently and without close supervision, and technical writers who prepare setup or installation instructions.
Take Employee Classification Seriously
The major takeaway here is to treat employee classification seriously. Employers who maintain a cavalier attitude about exempt/non-exempt classification could find themselves saddled with liability for years of unpaid wages, plus interest, statutory penalties, and attorney fees. Considering that misclassification is one of the most common reasons for lawsuits against employers, it’s not surprising that many big-name employers (as well as small and medium-sized ones) have had to pay large amounts of money for misclassifying employees.
WAGES v. DISTRIBUTIONS: WHAT EVERY EMPLOYER/ENTREPRENEUR NEEDS TO KNOW
Below is a cursory background of the extraction of profits from your business depending upon the nature of your business structure. Always seek out a tax accountant with any questions concerning your potential tax liability when utilizing any of the methods described.
How do I take a salary from my business?
The word “salary” is common when talking about employees, but most business owners don’t actually take a salary as an employee. Therefore, in order to determine how to pay yourself as a business owner, you must first look at the legal structure of your business:
- If you are a sole proprietor you are not an employee and you don’t take a salary in the form of a regular paycheck. No FICA taxes (Social Security/Medicare) are deducted and no federal or state income tax is withheld. A sole proprietor gets “paid” by taking a distribution from the profits of the business. Amounts taken out of a business by a sole proprietor may be called a “draw,” because these amounts draw down your capital (ownership) account.
- A partner in a partnership also does not get paid a specific salary. Partners can take distributions from partnership profits and are taxed based on their share of those profits on their partnership income tax return. How profits are distributed in a partnership or LLC depends on the language of the partnership agreement or LLC operating agreement.
- Owners of limited liability companies (LLCs) (called “members”) are not considered employees and do not take a salary as an employee. Single-member LLC owners are considered like sole proprietors for tax and income purposes, and multiple-member LLC members are considered like partners in a partnership.
- An owner of a corporation or S corporation is a shareholder, but corporate officers (those who work in the business) must take a salary and employment taxes must be paid on that salary. In addition, S corporation shareholders may take additional distributions of profit from the business.
How much salary can I take as a business owner?
Business owners (other than corporate officers) can take any amount they want from their business. Never take money that will be needed to pay employees, pay off business loans, or pay other bills of the business.
What’s a reasonable salary for an officer in a corporation or S corporation?
Some corporations try to hide corporate officer pay to avoid employment taxes, but the IRS says corporate officers must be paid a reasonable amount. The IRS has established guidelines for determining a reasonable pay, based on experience, duties and responsibilities, time spent, comparable amounts paid to others doing similar work, and other factors.
How does self-employment tax work for business owners?
The self-employment tax is the equivalent of FICA tax (Social Security and Medicare) for business owners. The amount of self-employment tax that must be paid is based on the profits of the business; if the business does not make a profit in any one year, no self-employment tax is generally due.
Owners of sole proprietorships, partnerships, and LLCs do not take a salary, so money they take from the business does not have deductions or withholding for (1) FICA taxes (Social Security and Medicare), (2) federal income tax, or (3) state income tax. In addition, no other employment taxes are paid by the company for this distribution to a business owner.
Sole proprietors, partners, and LLC members must pay self-employment tax when they complete their personal tax return for the year. The self-employment tax is calculated and added to the income tax due; self-employment taxes are paid to the IRS along with federal income taxes.
How does income tax get deducted from payments to business owners?
Since payments to business owners (not including salaries to corporate officers) are not considered payroll, federal and state income taxes are not withheld. Business owners should make quarterly estimated tax payments to avoid penalties.
Distributions from an S Corp are not subject to FICA and Medicare taxes. Wages however are subject to FICA and Medicare payroll taxes and are subject to ordinary income tax rates. Pension rules generally permit funding a pension as a percentage of your wage (Distributions are not wages and therefore are not counted in the pension contribution calculation). The tax savings will continue when money is contributed to a pension because the pension will grow tax free until retirement (compounding the growth of the investment).
Loans should be repaid with reasonable interest which is subject to income tax but (interest) is deductible as a business expense. So, as an average taxpayer you will have not have an increase in taxes as a result of the interest paid. Paying interest will provide support that the loan is arm’s length and not a disguised capital contribution. Good business practice dictates that when you lend money to your corporation you must get a formal Note (in writing). If you want the loan repaid without tax consequence, you should follow these guidelines. Most business owners will fund the start-up checking account with money from their personal accounts. A portion of these funds should be allocated on the balance sheet as a capital contribution (payment for the purchase of company stock). The amount allocated to Capital should be a reasonable value (for example $1000 for a service business, more for a business that requires significant purchases of inventory or machinery). The remainder invested may be repaid as a loan provided there is a note drawn and interest payments are made at regular intervals at a reasonable rate of interest according to the note document. Lack of interest payments would infer the debt is contingent upon corporate profits, which is considered a second class of stock. A second class of stock will permit the IRS to discard the S election and submit your company to C corporation taxes (double taxation.)
Expenses paid from an owners pocketcan be repaid to the S Corp owner with a company check. Just a side note – try to pay the vendor/ payee directly with company funds directly from the business account. For charge cards used for both personal and business purposes, send 2 checks, one from your personal account to pay personal charges and one from the business account to pay business expenses. Always endeavor to open up and use a business-only credit card.
DISCLAMER: The information provided by WFB Legal Consulting, Inc. in this newsletter is disseminated for educational purposes only, and is not to be construed as legal advice. Do not take any action, postpone any action, or decline to take any proposed action based on this information without first engaging the representation of a licensed attorney at law in your State of residence.
Offering Health Insurance – The Small Business Owner’s Guide
By David Waring On July 22, 2014
After reading this article you will have a solid understanding of the primary options for offering health benefits to your employees. This is the first in a series of articles, the purpose of which is to simplify your post Obamacare health insurance options.
A Summary of Your 3 Broad Options For Offering Health Benefits
Most small business have absolutely no legal obligation to provide health insurance, since only businesses with the equivalent of 50 full-time employees need to offer health benefits. That being said, you may want to offer health insurance in order to attract and retain great employees.
There are three main options that you should consider as you begin exploring your health insurance options:
- Increase employee compensation – Give your employees a raise so they can purchase their own health insurance.
- Offer a “cafeteria” plan – A special account your employees can use to pay their health insurance premiums with pre tax income, and that you can make tax deductible contributions to.
- Offer small group health insurance – How health insurance has typically been offered by employers.
What We Recommend
The right recommendation is going to depend on the size of your company, the salary levels of your employees, and how many of them are not already getting their insurance through some other means (such as a spouse).
Because there is no one size fits all solution, we recommend taking the following steps to decide which option is best for your business:
- Talk to your employees to gauge interest in health insurance. Find out who is being covered by a spouse, who is purchasing their own insurance, and who is uninsured.
- Talk to a health insurance professional. Ask them whether an employee raise, a cafeteria plan, or a small group plan would be best for your unique situation. Get quotes for different plans, as well as a firm understanding of the tax implications for each option. Ask them how complicated each option will be to manage and administer.
Not all insurance professionals are created equal, so make sure you have a basic understanding of the ins and outs of each option (detailed below). This way you will understand enough about your options to know whether or not the insurance broker you are speaking with knows their stuff.
Here is a more detailed overview the ins and outs of each option:
Offering health insurance can be extremely complicated, so one option is to completely avoid getting involved, and just give everyone a raise that they can use to buy their own plan.
- Fixed costs: You are in complete control of compensation, so you can set the exact amount you want to spend on health insurance and easily stick to your budget.
- Tax deductible: Salaries are tax deductible as business expenses.
- Greater employee choice: Employees can shop around on the individual exchanges for the plan that best suits their needs.
- Customizable incentives: You can offer different amounts to different employees, which helps you attract and retain valuable employees.
- Cheaper plans and subsidies: In most cases, plans purchased through the individual marketplaces are cheaper than the equivalent costs when paid as part of a small group plan. Furthermore, many of your employees may qualify for health insurance subsidies through the Obamacare health insurance marketplaces (discussed in more detail below).
- Ease of use: Letting your employees select and manage their own plans means one less thing for you to worry about.
- No tax deductions for employees: Employee salaries are taxable, so they will pay tax on any additional compensation that you provide to help them purchase health insurance. Group health plans, on the other hand, allow employees to contribute towards their their insurance premiums using “pre-tax” income. The portion of premiums which is paid by the employer is also not taxed as income to the employee.
- You Have To Pay Payroll taxes: Even though you can deduct salaries as a business expense, you will still be on the hook for the payroll taxes on the additional salary you are paying.
- No control over employees’ use of funds: There is no way for you to compel your employees to use their extra income to buy health insurance. You can encourage them to buy insurance, but there is no way to guarantee that they won’t use it for a vacation instead.
Increasing employee’s compensation so they can buy their own health insurance allows your employees to shop around for the plan that works best for them, and saves you a huge administrative hassle.
If your employees make less than 400% of the federal poverty line ($45,960 in 2014), they may qualify for government subsidies on health insurance plans offered through the individual Obamacare marketplaces. These subsidies could further reduce your employees’ health insurance costs, but they won’t qualify if you offer a group plan.
This means that the only way to ensure your employees will have access these subsidies is to not offer group health insurance. Furthermore, plans purchased on the individual market are generally cheaper than equivalent group plans, so going the individual route is often the best bet.
Before 2014, not offering group health insurance was seen as a serious drawback, since people with preexisting or chronic health conditions could be denied individual health insurance, or charged extremely high premiums. This made it important for people to get health insurance through their employer, where they could be sure to find coverage at a reasonable cost.
The Affordable Care Act changed all of this, however, by making it illegal for insurance companies to deny anyone coverage. This relieves some of the pressure on small business owners to provide group health insurance, since you know that all your employees will be able to access quality, affordable health insurance on the individual marketplaces. Many experts believe the Affordable Care Act will make small group health plans obsolete, and encourage small business employees to go to the individual exchanges.
The downside of increasing compensation to help your employees pay for health insurance is that you give more money to the government this way. Because the extra money is being paid out as salary the business must pay payroll taxes on the money, and the employee pays their normal income taxes on the additional income.
A Cafeteria Plan
Cafeteria plans can be a good way for small business owners to avoid paying additional payroll taxes, while also giving their employees the ability to buy insurance using pre-tax income.
- Fixed costs: You are in complete control of how much you contribute to your employees cafeteria plan, so you can set the exact amount you want to spend on health insurance and easily stick to your budget.
- Tax advantaged: Contributions are tax deductible as business expenses and exempt from payroll taxes.
- Employees use pre-tax income: Employees are not taxed on any contributions that they make to their cafeteria plan.
- Greater employee choice: Employees can shop around for the plan that best suits their needs.
- Customizable incentives: You can offer different amounts to different employees, which helps you attract and retain valuable employees.
- Cheaper plans: In most cases, individual plans are cheaper than small group plans.
- Complexity: Setting up and administering a cafeteria plan is complicated, and the rules and regulations can be difficult to understand.
- No subsidies: Employees are not eligible for government subsidies when purchasing through a cafeteria plan.
A cafeteria plan is a form of “Section 125” plan that allows employees to set up health spending accounts that allow employees to contribute a certain amount of their income to a designated account before taxes are calculated. Employees can then use this account to pay for insurance premiums and other medical expenses.
Cafeteria plans can help you avoid paying FICA taxes, and lets your employees pay for medical expenses using pre-tax income. This can save you both a lot of money.
There are two primary downsides to using cafeteria plans as part of your business:
- They are tricky to setup and administer.
- Individuals cannot use cafeteria plans to purchase health insurance that is part of the affordable care exchanges, and are therefore not eligible for government subsidies.
There is also a lot of confusion, even among insurance professionals, as to whether or not Obamacare allows cafeteria plans to be used when purchasing off exchange health insurance plans.
This is why if you are going to explore this option we recommend working with a knowledgeable professional.
Group Health Insurance Plans
When people think about health insurance, they are most likely thinking about an employer-provided group plan.
- Easy for employees to understand: most people are already familiar with the concept of employer-based health insurance, and view it as the most important job related benefit. Offering a group plan will almost certainly increase your appeal as an employer.
- Tax benefits: the money you spend on providing health insurance counts as a business expense, which means it is tax deductible. Employees are also able to pay for their share of health insurance premiums out of their pre-tax income, which decreases their overall tax obligation.
- Tax credits: If you purchase your group plan through one of the Obamacare exchanges, you may qualify for a tax credit worth up to 50% of your contribution towards your employees’ premium costs. While this sounds enticing, unfortunately the requirements to receive the tax credit generally make providing group health insurance too expensive for the average small business, even with the tax credit. To qualify for this tax credit you must pay at least half of your employees’ health care premiums and have 25 or fewer full-time equivalent employees who earn an average of $50,000 or less per year. The tax credits will be available to small businesses for 2 consecutive years, and more information is available from the IRS here.
- Share the premium payment: Offering a group plan doesn’t necessarily mean that you need to pay the whole cost of the premium. Employers typically pay 50-80% of the premium cost, but small business can generally make smaller contributions and defer the rest to the employee. Depending on your particular circumstances you may end up paying anywhere from 0% to 100% of the premium cost.
- Cost: Providing group health insurance can be expensive. In 2012, the average cost to all employers was $4,226 per employee. In addition to this, employees paid an additional $1,118 on average (See this report for state averages).
- Changing prices: Health insurance premiums often change from year to year depending on the costs of medical procedures, physician pay, prescription drugs, and administration. The complex calculations underlying health insurance premium makes it difficult to fully anticipate changes and budget accordingly. If you commit to a group plan, you may end up on the hook for a larger expense than you anticipated.
- Minimum requirements: In order to qualify for most group plans, you have to give all your full-time employees the option of enrolling, and at least 70% need to actually opt in. The exact requirements will vary depending on the insurance company and plan, but group plans generally give you less flexibility than simply increasing compensation, which you can do on a case-by-case basis.
- Administrative hassle: With a group health insurance plan, its up to you to select and manage the plan you offer. The administrative responsibilities associated with this can take up a lot of time, and keep you from more important aspects of your business. It can be difficult to choose a one size fits all plan that will satisfy all your employees and meet their diverse needs.
As with a cafeteria plan, we also recommend that you only shop for a small group plan with an experienced health insurance professional. Using a broker won’t cost you more than shopping on your own, and they will be able to explain to you the benefits and options of various plans.
When you talk to an advisor, ask about traditional small group plans, the Obamacare SHOP plans, and getting group coverage through a Professional Employer Organization (PEO). They will be able to give you exact quotes, and help you understand the costs and tax implications of each option.
Here at Fit Small Business we always try to give business owners all the information they need to accomplish a specific task, without any outside help. In this instance however, we strongly recommend that you seek professional advice in order to find the best solution for your business. Trying to navigate the post Obamacare health insurance marketplace on your own is simply not worth the time, hassle, or risk.
The goal of this article was to arm you with enough information so you can vet a potential insurance professional and know if they are worth their salt.
ARE YOU READING FACEBOOK OR OTHER SOCIAL MEDIA WEBSITES TO MAKE HIRING DECISIONS?
Many business owners have turned to social media and other “free” listing sites to look to fill positions within their business. Use of social media to share photographs, personal details, thoughts, and opinions on each and every subject is prevalent. And, there is no question that employers regularly review social media postings and other online sources as part of the hiring process. A recent study from Carnegie Mellon University concluded that employers use social networks to find evidence of unprofessional behavior, including complaints about previous employers or discussion of drug use.
As of January 2013, the California Labor Code prohibits employers from requesting or requiring applicants or employees to (1) disclose social media log-in credentials; (2) access personal social media in the employer’s presence; or, (3) divulge any personal social media, except in limited cases. California joins eleven other states that regulate an employer’s ability to request passwords to individuals’ social media accounts and prevent an employer from demanding that an applicant or employee log on to a social media profile to allow the employer to “shoulder surf” and review the information contained in those profiles.
Still, questions persist about the propriety of social media in the hiring process when candidates have not made their social media profiles “private.” In those instances, an employer may lawfully check online photographs and profiles observing how candidates spend their time, what they like or dislike, and other items that may reveal a candidate’s race, ethnicity, marital status, disability status, or other information that you would not dream about asking in a job interview. Simply reading this publicly-available information does not violate employment laws. It is what you do with the information you either intentionally or inadvertently discover that can cause headaches. Of course, making employment decisions based on an individual’s protected characteristic, such as marital status, age, perceived or actual disability, race, veteran status, etc., will run afoul of equal employment laws. But, what if you learn of a particular characteristic, like a disability, and allow that to influence your employment decision?
On balance, checking social media websites as part of the hiring process is rife with legal risks. Even if you do not make a decision based upon an impermissible reason, it is difficult to defend a hiring decision when in the process of reading social media, you learn of a characteristic you would not typically know from an employee interview, such as an employee’s religion, disability, or marital status. Using social media to research candidates may increase the risk of an applicant claiming discrimination in the hiring process and expose you to unintended legal liabilities.
If you must “Google” an applicant or scan his or her Facebook public profile, consider the following steps to limit exposure:
• First, ask yourself why are you researching this individual online? Is it integral to the hiring process? Can you obtain the necessary information from interviews and reference checks, or other materials?
• Interview the applicant first before reviewing social media profiles. This will allow you to focus on the applicant’s qualifications and experience.
• If you are conducting a background check prior to hiring, you should disclose to the applicant that the background check will include review of social media websites.
• It is prudent to have someone other than the final decision-maker (ideally, a third-party provider who is in the business of performing background checks) to consult the social media websites equipped with a specific list of information to legally consider. The reviewer should not make notes of information that may relate to a protected characteristic. If you use a third-party provider, ensure that you are complying with the Fair Credit Reporting Act and the California Consumer Credit Reporting Agencies Act.
• If you utilize a background check policy that includes consultation of social media, be sure to apply that policy evenly and consistently with all candidates to avoid claims of differential treatment.
• It is a good idea to keep all records, including the webpages you reviewed, of your hiring decision. These records will support your defense to any possible claim that you failed to hire someone based on a discriminatory or unlawful reason.
ARE PHYSICAL EXAMS PRUDENT WHEN HIRING?
Avoid Costly Hiring Mistakes
It’s a slippery slope that employers try to navigate when it comes to having certain physical standards for a job applicant. The Americans with Disabilities Act (ADA) bans employment discrimination based on a physical, mental, or emotional disability and requires employers to make reasonable accommodations for those with disabilities. But what’s a disability? Are physical requirements for job performance permissible? Some recent developments:
Using past medical history
How much past medical history is an employer entitled to know about and can it be used against a job applicant? In one case, a pre-employment physical turned up evidence of prior back surgery. Because the applicant’s doctors couldn’t assure the company that there would be any back problems, he had his job offer withdrawn. A federal district court said the employer violated the ADA (EEOC v. American Tool & Mold, Inc.) The court said that the company could not rely on “myths and fears” about back surgery in general to make a determination about job fitness.
Requiring all job applicants offered a position to take a physical before starting employment seems harmless. It may uncover drug use or other conditions that would make it uncertain at best whether the person could do the job. However, using some findings to reverse a job offer is not permissible.
One company found out through the pre-employment physical that an applicant was diagnosed with prostate cancer and withdrew the job offer. A federal district court upheld the EEOC’s challenge to this action (EEOC v. Professional Freezing Services, LLC). This violated the ADA and the applicant recovered $80,000.
In order to rely on the findings in a medical examination and not be in violation of the ADA, a doctor must certify that the person is unable to perform the duties of the job. It’s not up to the company to make this determination based on information from the medical examination.
The Equal Employment Opportunity Commission (EEOC) can bring an action against an employer when there is a claim of an ADA violation. Here are some recent pending actions; you can play judge and decide which way they should go:
» A construction company wouldn’t hire a carpenter with dyslexia that prevented him from reading. The carpenter had 10 years of experience as a carpenter.
» A cleaning company fired a worker who suffered from pregnancy-related health issues. The worker had a two-year unblemished work record and the pregnancy did not prevent her from doing her job.
» An applicant with end-stage renal disease had a job offer as a store associate withdrawn because she needed a reasonable accommodation during the application process (she needed an alternate test to the usual urine analysis for drug testing).
EMPLOYEE CONFIDENTIALITY AGREEMENTS: HOW AND WHEN THEY ARE VIABLE
While non-compete agreements are generally disfavored in CA, confidentiality agreements are a different animal assuming you can show that the material you wish to protect is proprietary in nature, among other key things. Take a look at the article at the link below and bear in mind a caution as to its general reference to non-compete agreements versus the scope of non-competes in CA–call and I’m happy to provide the full scoop.
INSIDE THE BUSINESS STRUCTURE–FOLLOWING THE LAW
Interestingly enough, I find that many times a business owner’s worst enemy is his own business, simply because even though he has established a protective entity, he nevertheless fails to protect the entity from avoidable claims from within its own structure.
Case in point: I had a client who ran an excellent business both in terms of profitability and structure. The business was unique, well known in the community, and most of all very proficient in terms of the work it was charged with performing. Nevertheless, the business owner did not, at times, follow California labor laws which mandate the implementation of certain procedures with regard to employees. Wages were not documented properly; vacation time was not documented properly or even given on a regular basis; overtime issues arose which caused employees to file claims against my client– the business owner.
All of these things could’ve been avoided by simply doing two things: retaining a lawyer for business at the outset of the origination of the company in order to watch over it and guide it after its origination and before any need to litigate arose; and create an attitude of profitability that looks at employees as a valuable asset, as opposed to an irritable thorn in one’s side that has to be coped with on an everyday basis.
The following article/source of law, is a very handy and necessary requirement for every business owner who has employees. I would urge you to take a look at the link below and contact a lawyer for business that can help you with any questions concerning its interpretation.
WRONGFUL TERMINATION–WHAT THE PARTIES MUST SHOW:
As I’ve mentioned before, in order to generate or defend a wrongful termination action in the State of California one must find a way around the statute in this state that generally provides for termination at will. In effect, an implied contract cause of action is a way to show that termination can occur only after showing good cause.
In that regard, an employee, who is generally the plaintiff in such a cause of action, must show the following: 1. the existence of the contract through adequate time spent on the job, good employee reviews, or representations provided by the employer; 2. termination of the employee despite satisfactory job performance. The defendant, an employer in most instances, must in fact show evidence of a lawful reason for termination based on an adequate investigation, which includes notice of a claim of misconduct and a chance for the employee to respond to the claim. If the defendant produces such evidence, then the burden shifts to the employee.
In response, the plaintiff must then show that the employer’s evidence is pretextual, in other words the real reason for termination is prohibited by contract or by some violation of public policy, or the evidence is insufficient to meet the employer’s obligations under the implied contract.
Remember that it is a jury who decides whether the employer’s decision in finding good cause for the termination was reasonable under the circumstances known to the employer at the time the decision to terminate was made. The jury, in other words, decides whether the employer acted in good faith and with fair and honest cause or reason.
If an employment contract in writing already exists that documents the fact that the employment is “at will”, meaning that the employment can be terminated at any time but not specifying that it also means that employment can be terminated without cause, the contract is nevertheless not per se ambiguous. Rather, such a formulation ordinarily entails the notion of “with or without cause”. In this instance, despite a written contract, termination cannot occur due to public policy violations such as race discrimination, sexual-harassment, etc.
Finally, be aware that if an employee does have a written contract for a specified term, the California Labor Code requires a higher standard of cause for termination, such as a willful breach of duty or habitual neglect, where obviously the termination occurs prior to the expiration of the term.
I provide this brief synopsis because as a LAWYER FOR BUSINESS, it is my job to keep everyone, including my clients, from going to court. Monitoring your business by having an attorney on retainer is just as important as establishing a business entity for asset protection purposes or creating an individualized estate plan.
THE NEW FEDERAL TWIST ON OVERTIME REQUIREMENTS FOR EMPLOYERS
CA employers need to be aware of overtime issues that are consistent with potential changes by the Federal Government. Maybe bad news, unless you are a concerned employee?
SEE full article here: http://www.callaborlaw.com
U.S. SENATE CONSIDERING BAN ON (NEARLY) ALL CREDIT CHECKS
Senator Elizabeth Warren, is introducing a bill to ban the use of pre-employment credit checks altogether. The bill (as introduced) simply would amend the Fair Credit Reporting Act to make it illegal for employers to rely on credit reports to take adverse actions. Employees would no longer be able to consent to disclosure.
Any exceptions? Certainly. Credit checks will still be allowed when the position involves national security. Another exception – when credit checks are required by law. Why would credit checks be required by law? The EEOC says credit checks are discriminatory. How can something discriminatory be required by law?
Anyway, that’s it for exceptions. As written, this bill does not expressly create any exception for positions involving cash handling, banking, etc. If this bill is passed, unless the job is one of “national security” or unless a credit check is “required by law,” employers will be out of luck.
Employers may desire to run investigative consumer reports, credit reports and criminal background checks in part to verify information that applicants provide on their applications. Application fraud appears to be a big problem, according to recent surveys. This bill may not make it through either house, or it could be amended. But the trend among state and local governments is to get rid of credit checks, criminal background checks, and other pre-employment tools that help employers determine who is a financial or other risk. Employers should keep abreast of this trend, and make plans to alter hiring practices as the law evolves.
WHY EMPLOYERS NEED TO BE WARY OF RELIGIOUS BIAS AT WORK
As many as one-third of U.S. workers say they have witnessed or been subject to religious bias at work. That is according to a new national survey that shows plenty of sensitivities when it comes to religion and the workplace. See full article at link below.
DRUG TESTING IN THE WORKPLACE: COMPLIANCE REQUIREMENTS
Generally speaking, state laws typically allow employers to test applicants for drugs. However, the employer must follow the state’s rules about providing notice and following procedures intended to prevent discrimination and inaccurate samples. For example, a number of states allow applicant testing only if:
- The applicant knows that such testing will be part of the screening process for new employees (for example, because the job application said so or because the employer’s online job posting stated that a drug test would be required).
- The employer has already offered the applicant the job, contingent on passing a drug test.
- All applicants for the same job are tested similarly.
- The tests are administered by a state-certified laboratory.
Today, most companies that intend to conduct drug testing on job candidates include in their job applications an agreement to submit to such testing. If, in the process of applying for a job, you are asked to agree to drug testing, you have little choice but to agree to the test or drop out as an applicant.
There are some legal constraints on testing employees for drug usage in most private employment jobs. In some states, companies cannot conduct blanket drug tests of all employees or random drug tests; the testing must be focused on an individual, either because the employer has a good reason to believe that person is using drugs or because the person’s job carries a high risk of injury or damage if performed by someone who is under the influence.
Courts have generally ruled that companies may test employees after an accident that could have been caused by drug use or an incident in which the employee appeared to be impaired.In the absence of a union, drug testing is held in check by privacy right limitations under California law. A California employer therefore should provide notice that employees will be subjected to random drug testing, preferably at the time of hiring.
DISPUTE RESOLUTION POLICY
It is critically important to have a dispute resolution policy in place for your business in my opinion, regardless of its size. The most practical positioning of this policy would be in an employee handbook, the whole of which should encompass the policy and practice that the business employs in conjunction with both State and Federal Laws. A typical insertion of such a policy appears below, and should not be taken lightly when evaluating the critical mechanisms in place that will promote the smooth operation of the business itself. Remember, our objective is always to avoid litigation if at all possible.
Any employee has an absolute right to complain about any employment issue, including discrimination or retaliation. As a consequence, XYZ COMPANY has adopted the following grievance procedure:
- Employees are encouraged to work out any problems among themselves, although they are not required to do so. A formal complaint should thereafter initially be registered with the employee’s immediate supervisor. The complaint should be made to the Administrator if the immediate supervisor is a party to the complaint.
- An employee has a right to immediately bypass on appeal any other employee who is in a supervisory position and whose conduct the employee has challenged.
- Any employee who lodges a complaint will be free of retaliation from lodging the complaint.
- Any appeal of the complaint’s findings taken to someone above the employee’s immediate supervisor will automatically be reviewed by the Administrator.
- Any employee may seek out and request the assistance of any other employee who is willing to act on his or her behalf in the grievance process.
- An employee will have 30 days from the date of the last grievous act complained to file a complaint with his or her immediate supervisor, or with the Administrator if the immediate supervisor is a party to the complaint.
Having these guidelines in place may not only avoid potential litigation, but will promote employee trust in the employment relationship by instilling confidence that the employer will make every effort to promote a harmonious atmosphere in the workplace. It further places the ball squarely in the court of the employee to act responsibly in bringing the complaint if he or she genuinely believes one is necessary, while simultaneously placing the responsibility on the employer to carry through on the promises made concerning dispute resolution, should the situation presented itself. Visit: www.businessassetprotection365.com
HUMAN RESOURCES 101: EMPLOYER GUIDE
I recently came across this interesting “article” that capsulizes four major areas for which employers must be aware…items I incorporate into handbooks I provide for my clients. Read with care and patience. You don’t have to be in the wrong to be sued.
INDEPENDENT CONTRACTOR VERSUS EMPLOYEE
Many times employers improperly classify their employees as independent contractors so they, the employers, do not have to pay payroll taxes, the minimum wage or overtime, comply with other wage and hour law requirements such as providing meal periods and rest breaks, or reimburse their workers for business expenses incurred in performing their jobs. Moreover, employers do not have to cover independent contractors under workers’ compensation insurance, and are not liable for payments for unemployment insurance, disability insurance, or social security.
State agencies most involved with the determination of independent contractor status are the Employment Development Department (EDD), which is concerned with employment-related taxes, and the Division of Labor Standards Enforcement (DLSE), which is concerned with whether the wage, hour and workers’ compensation insurance laws apply. Since different laws may be involved in a particular situation such as a termination of employment, it is possible that the same individual may be considered an employee for purposes of one law and an independent contractor under another law. There is a rebuttable presumption that where a worker performs services that require a license pursuant to Business and Professions Code Section 7000, et seq., or performs services for a person who is required to obtain such a license, the worker is an employee and not an independent contract. Labor Code Section 2750.5.
Since there is no set definition of the term “independent contractor”, you must look to the interpretations of the courts and enforcement agencies to decide if in a particular situation a worker is an employee or an independent contractor. The actual determination of whether a worker is an employee or independent contractor depends upon a number of factors, all of which must be considered, and none of which is controlling by itself. Consequently, one must apply the “economic realities” test adopted by the California Supreme Court. In applying this test, the most significant factor to be considered is whether the person to whom service is rendered, such as the employer or principal, has control or the right to control the worker both as to the work done, and the manner and means in which it is performed. Other additional factors may also be considered, such as:
- Whether the person performing services is engaged in an occupation or business distinct from that of the principal;
- Whether or not the work is a part of the regular business of the principal or alleged employer;
- Whether the principal or worker supplies the instrumentalities, tools, and the place for the person doing the work;
- The alleged employee’s investment in the equipment or materials required by his or her task or his or her employment of helpers;
- Whether the service rendered requires a special skill;
- The kind of occupation with reference to whether, in the locality concerned, the work is usually done under the direction of the principal or by a specialist without supervision;
- The alleged employee’s opportunity for profit or loss depending on his or her managerial skill;
- The length of time for which the services are to be performed;
- The degree of permanence of the working relationship;
- The method of payment, whether by time or by the job; and
- Whether or not the parties believe they are creating an employer-employee relationship may have some bearing on the question, but it is not determinative, since this is a question of law based on objective tests.
Other factors to consider in determining whether a worker is an employee or independent contractor are the existence of a written agreement purporting to establish an independent contractor relationship and the fact that a worker is issued a 1099 form rather than a W-2. Again, however, these factors nevertheless are not solely determinative with respect to the status of the worker.
The fact that a person who provides services is paid as an independent contractor, without payroll deductions and without income reported by an IRS form 1099 rather than a W2, is of no significance whatsoever in determining employment status. Your employer cannot change your status from that of an employee to one of an independent contractor by illegally requiring you to assume a burden that the law imposes directly on the employer, that being, withholding payroll taxes and reporting such withholdings to the taxing authorities.
Moreover, even if the written agreement exists, courts will look behind such an agreement in order to examine the facts that characterize the parties’ actual relationship, and make a determination as to employment status based upon the analysis of such facts and the application of law.
A person may file a wage claim with the Division of Labor Standards Enforcement, or file an action in court to recover lost overtime and other potential damages, if the employer acts inappropriately. After the claim is completed and filed with the DLSE, it is assigned to a deputy labor commissioner who will determine how best to proceed. Initial action taken regarding a claim can be referred to a conference or hearing, or even dismissed. At the hearing, parties and witnesses testify under oath and the proceeding is recorded. Subsequently a decision or award by the labor commissioner will be served on the parties. Either party may appeal the award to a civil court of competent jurisdiction. The court will set the matter for trial and each party will have the opportunity to present evidence and witnesses. The evidence and testimony presented at the commissioners’ hearing, however, will not be the basis for the court’s decision.
Finally, if you are an employee and your employer discriminates or retaliates against you in any manner whatsoever, such as a discharge because you questioned him about your employment status, or about not being paid overtime or because you filed a claim with the labor commissioner, you may file a discrimination and retaliation complaint with the labor commissioner’s office. In the alternative, you can file an action in court against your employer. However, if it is found that you are in fact an independent contractor, the Division of Labor Standards Enforcement cannot assist you, as it does not have jurisdiction over independent contractors. In this instance you would have to go to court to try to enforce your rights.
I hope this has provided you with an appropriate overview with regard to the distinctions between an employee and an independent contractor. In such cases you must contact a competent lawyer, who is better able to determine your status and who can help you with either an administrative or court proceeding. These questions come up frequently in my practice and I felt it pertinent to address these issues here.
HOW TO INITIALLY AVOID ILLEGAL DISCRIMINATION
Federal and state laws prohibit you from discriminating against an applicant or employee because of race, color, gender, religious beliefs, national origin, physical disability, or age, if the person is 40 years old or more. Moreover, many states and cities have laws prohibiting employment discrimination based on marital status, sexual orientation, and a variety of other characteristics.
However, anti-discrimination laws don’t dictate whom you must hire. You remain free to hire, promote, discipline and terminate employees, as well as to set their salaries based on their skills, experience, performance and reliability. Nevertheless, some illegal practices should be obvious, such as advertising a job for people ages 20 to 30 only, which on its face violates age discrimination laws, as well as paying lower wages to women then to men for the same work, in violation of equal pay laws. More subtly, anti-discrimination laws can also bar employment practices which seem innocent, but end up having a disproportionate and discriminatory impact on certain groups. For example, if your central means of seeking candidates is through word of mouth and your work force consists entirely of white men, the word of mouth recruitment can be illegal discrimination if it produces only white male applicants.
Accordingly, to avoid anti-discrimination law violations at the hiring stage, remember the following:
- Advertise job openings in widely read newspapers so they come to the attention of diverse people.
- Determine the skills, education and other attributes that are truly necessary to perform the job, so that you don’t impose requirements that unnecessarily exclude capable applicants.
- Avoid screening techniques that have an unfair impact on any group of applicants.
- Remember, that while it is wise to screen potential employees, there’s a potential problem in mounting intensive background checks. Your attempt to assess applicants by gathering information about their past can conflict with their right to privacy. Therefore, before you send for high school or college transcripts and credit reports, for example, obtain the applicant’s written consent. If the applicant will not consent, you’re free to drop him or her from further consideration, as long as you follow the same policy with all applicants.
EMPLOYER AWARENESS: WHAT IS “AT-WILL” EMPLOYMENT IN CALIFORNIA?
The following is provided for general employer awareness in the workplace. Businesses, especially those unprotected by proper entity creation, are vulnerable to lawsuits costing thousands, even millions of dollars. In that regard, the concept of “at-will employment” and frequent termination claims are often misunderstood. Hopefully, you are doing everything in your business to ensure compliance with federal and state laws, because you don’t have to be in the wrong to be sued. Litigation can occur at any time if you are unprotected and unaware of the consequences of running a business in today’s litigious society.
Under the “at- will” employment rule in the State of California, when employment is for an unspecified term, an employer can terminate an employee at any time for any reason and the employee can quit anytime for any reason. The rule is codified in California Labor Code Section 2922.
While the at will statute creates a rebuttable presumption that the employee can be terminated at- will, this presumption can be overcome if: the employee can establish a statutory exception to the at-will rule; if a public policy prevents the termination; or by way contract, the parties have agreed either expressly or impliedly, that termination shall be for cause or otherwise limited in some way. On this last point, the totality of circumstances, including the employee or an industry practice, longevity of service, and express assurances of continued employment determine the parties’ actual understanding regarding the existence of an implied contract to terminate only for cause. It is imperative to recognize that at-will language does not necessarily establish that the employment is at-will, since extraneous evidence is admissible to explain the intent of the parties.
Statutory exceptions to the at-will doctrine, both state and federal, must always be considered. For example, anti-discrimination statutes bar termination based on race, color, religion, sex, age, handicap, disability, and even veteran status. Likewise, anti-retaliation statutes bar termination based on an employee’s opposition to unlawful practices where the exercise of, or attempt to exercise rights afforded to employees by law are resisted. The California Constitution, California Fair Employment and Housing Act, and the Federal Civil Rights statute contained within the United States Code, provide such exceptions. Furthermore, both state and federal statutes impose on all employers, regardless of how many workers they employ, an independent duty to maintain a workplace free of general workplace harassment, including sexual-harassment. Personal liability for individual employees, who commit harassment, even if they are not supervisors, can be imposed for example, pursuant to the California Government Code. Liability for the employer (business itself) for workplace or sexual-harassment, even committed by non-employees who visit the company, can be imposed if the employer knew or should have known of the conduct and failed to take immediate and appropriate corrective actions.
These provisions must be made known to the employer, hopefully by the business attorney who works with the employer in an effort to keep his/her business free from termination claims. Nonetheless, the employer is charged with the duty of knowing these laws. Likewise, employees must be made aware of these laws either through their own efforts or, more appropriately, by way of an employee handbook that is provided to them by the employer at the time of hiring. Such a handbook protects the employer from claims of failing to institute policy safeguards that are in compliance with state and federal laws.
Employers should also be made aware of the continuing violation doctrine. Under this doctrine, an employer’s persistent discriminatory, retaliatory, and or harassing conduct is “continuing” in nature if such conduct is sufficiently similar in kind; occurs with reasonable frequency; and is not so permanent that a reasonable employee would know that any further efforts at informal conciliation would be futile. Most often, these are all questions of fact which will embroil an employer in costly litigation, even if eventually resolved in its favor. For example, under the California Fair Employment and Housing Act, an adverse employment action is one that materially affects the terms, conditions or privileges of employment. In other words, an employer’s actions must only be harmful to the point that they could dissuade a reasonable worker from performing his duties on the job to his capabilities.
Finally, employers must also be aware of general public policy violations which prevent discharge. To support a claim for wrongful termination pursuant to public policy by an employee, the policy must be set forth in some statutory, constitutional or regulatory provision; which is well-established, fundamental and substantial, as well as public in nature, such that all people are made aware of the consequences of a violation. For example, a policy against age discrimination by an employer of more than four persons embodied in the Fair Employment and Housing Act in the State of California has been continuously in effect since 1961. For that reason, the policy is well-established. Furthermore, a public policy against age discrimination by an employer of more than four persons under the same act is sufficiently substantial and fundamental to support a claim for wrongful discharge in violation of public policy, simply because it is inherently wrong to discriminate against someone based on their age. Accordingly, a claim by an employee claiming age discrimination may allege multiple causes of action based on discrimination itself, as well as on a violation of public policy. In contrast, for example, a program providing an accommodation for voluntary employee drug and alcohol rehabilitation does not express fundamental and substantial grounds for termination, and thus will not support a claim for wrongful discharge.
The above synopsis makes clear that both employers and employees must be on the same page during the course of the employment relationship. While it is imperative to have a business attorney oversee the inner workings of a business for the protection of the employer, it is just as fundamental to ensure that the employee is himself or herself made aware of his or her rights in order to be able to avoid such claims against employers. Keep files on every employee and make note of any and all misconduct. Provide verbal and written warnings should they occur, and provide employees with annual reviews for their own awareness, as well as the protection of your business.
BEST ASSET PROTECTION SERVICES GROUP: WFB Legal Consulting, Inc.
*Please be advised that this communication is for general public informational use only and does not establish an attorney-client relationship. For more information, please contact WFB Legal Consulting, Inc.—a BEST ASSET PROTECTION Services Group at (949) 413-6535.
Introducing…GAITE-way Business Solutions to the business community! WFB Legal Consulting, Inc. is proud to announce its affiliation with a new brand of professionals—all geared to building your business acumen.
GAITE-way Business Services is a unique group of individuals, who provide startup and existing businesses with the ability to manage, grow and protect both their business and personal assets. The objective of the professionals at GAITE-way Business Services is simple: uniquely organized legal, consulting, tax and insurance services, collectively provided for the convenience and security of the entrepreneurial business owner.
Management Training, Marketing Strategies, Business Contracts, Asset Protection Strategies, Tax Planning, IRS Audits, Workman’s Comp Insurance, Errors & Omissions Insurance, Employee Benefits, Business Owner Retirement Plans, Operational Tune Ups, Sales Processes
26005 Windsong Lake Forest, CA 92630 United States
• CALL: (949) 413-6535 Today!
• Members: Steve Smith of Growth Source Coaching (Business Coach)
Bill Bernard of WFB Legal Consulting (Business Attorney)
Sharon Masler of Masler & Associates (CPA Services)
Bill Pyott of New York Life (Life and Health Ins. Services)
Jack AuBuchon of Mission Coast Ins. Services (General,Professional and Workers’ Compensation Insurance