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    August 2022

     

    California notoriously has some of the most stringent and complex employment laws in the nation. As such, even well-intentioned employers can easily find themselves running afoul of California’s rules and regulations, oftentimes at a significant cost. The following is a list of some of the most common mistakes employers make regarding California employment laws:

    1. Overtime

    Under federal law, non-exempt employees are entitled to overtime for any hours worked in excess of 40 hours in a week. California, however, also requires overtime for any hours worked in excess of 8 hours in a day. California also requires doubletime for any hours worked in excess of 12 in a day, or in excess of 8 on the seventh consecutive day of work.

    Employers should also take care with how they calculate overtime. Overtime in California is one and a half times the employee’s regular rate of pay. Employers, therefore, must account for all forms of payment when calculating the overtime rate. For example, commission earnings and non-discretionary bonuses must be included in the overtime calculation. As a result, employees’ overtime rates may vary from paycheck to paycheck.

    2. Meal and Rest Breaks

    California strictly regulates meal and rest breaks for non-exempt employees. Employees are entitled to a paid, 10-minute rest break for every four hours (or major fraction) worked. Anything over two-hours is generally considered a “major fraction.” As such, an employee working six hours should be provided at least two paid rest breaks. In a typical eight-hour workday, the rest breaks should be on either side of the employee’s meal break. Employers should not combine the meal and rest breaks or schedule breaks at the start or the end of a workday.

    Employees who work at least five hours are entitled to an unpaid meal break of at least 30 minutes. Employees who work in excess of 10 hours are entitled to a second, 30-minute, unpaid meal break. If an employee works less than six-hours, the employee may waive the meal break, but the waiver should be in writing.

    Employees taking their meal and rest breaks must be relieved of all work duties during the break period. This means employees are free to do what they want during this time, including leaving the worksite. If an employer fails to provide an employee with a compliant meal or rest period (e.g., by requiring the employee to be on call during the break or working through the break), the employee is entitled to pay for the time worked. The employee is also entitled to a premium wage equal to one-hour of the employee’s regular rate of pay. Keep in mind that the calculation for the regular rate of pay must include all forms of wages, including commission payments.

    3. Classification as Exempt or Non-Exempt Employment

    In order to classify an employee as “exempt,” the employee must meet the criteria set forth for the specific industry in the Industrial Welfare Commission (“IWC”) Wage Orders. For most wage orders, exempt employees fall within one of three categories: (1) executive; (2) administrative; or (3) professional. In order to qualify as an exempt employee, the employee must spend at least 50% of the workday on duties falling within the definition of executive, administrative, or professional work.

    Exempt employees must also be guaranteed a salary of at least two-times the California minimum wage. The salary can include all forms of wages, including commission. That said, an employee is misclassified if there is a possibility that the employee’s salary might fall below the exempt salary threshold. Given this, employers should take care when using variable wages, such as commissions, when calculating the exempt salary threshold.

    4. Exempt Employee Wages

    In most cases, if an exempt employee works any hours during a workweek, the employee is entitled to their full week’s salary. Employers cannot pay a salaried employee a half day of wages, for example, if the employee leaves early for a doctor’s appointment. In some cases, an exempt employee’s salary can be reduced by a full day if the employee does not perform any work on that day. In those case, the employee and employer should confirm the deduction in writing.

    5. Classification as an Employer or Independent Contractor

    The California legislature passed Assembly Bill 5 (AB5) in 2019, and it became effective as of January 1, 2020. AB5 codified the “ABC Test” when determining a worker classification as an independent contractor or employee. In order to classify a worker as an independent contractor, the employer must demonstrate all of the following:

    (a) the worker is free from control and direction in the performance of services; and
    (b) the worker is performing work outside the usual course of the business of the hiring company; and
    (c) the worker is customarily engaged in an independently established trade, occupation, or business.

    The ABC Test made it more difficult to classify workers as independent contractors, largely due to the requirement that the work performed must be outside of the usual course of the business. Companies with existing independent contractor relationships should review those relationship for compliance with the ABC Test and may need to reclassify the workers as employees. Companies looking to enter into new independent contractor relationships should take care to review the position under the ABC Test to ensure that the position actually qualifies for independent contractor classification.

    6. Sexual Harassment Training

    California requires most employers to conduct sexual harassment training for its employees. Employees who may be classified as “managers” are required to have at least two-hours of sexual harassment training every two years. Non-managers are required to have one-hour of sexual harassment training every two years. Employers should keep in mind that the definition of “manager” in this context is broad. Managers can include any employee who assigns or oversees work of another. Additionally, newly hired employees must be trained within six-months from the start of employment.

    Training must be in a classroom setting, through an electronic portal, or by live webinar. If the training is not in person, the training must include instructions on how to contact a trainer who can answer questions within two business days. Training must cover a variety of topics, including: (1) defining sexual harassment in state and federal regulations; (2) types of conduct that may constitute sexual harassment; (3) strategies to prevent sexual harassment; (4) the complaint and investigation process; and (5) a review of the employer’s sexual harassment policies. Further, California mandates anti-bullying training that can be tied into the sexual harassment presentation.

    7. Final Paycheck After Termination or Resignation

    If an employee is terminated from employment, the employer must immediately pay the employee all wages due on the date of termination. Similarly, an employee who provides notice at least 72 hours in advance of resignation must be paid all wages due on the last day of employment. If an employee resigns and does not provide 72 hours’ notice, the employee must be paid all wages due within 72 hours of quitting.

    The payment of all wages due includes the employee’s salary or payment for all regular and overtime hours worked. It also includes payment of earned commissions and earned non-discretionary bonuses. Accrued, unused vacation time is also considered wages earned and must be paid at the time of separation from employment. However, unless the employer specifies otherwise, accrued sick leave is not considered wages and is not due on separation.

    If an employee is not paid promptly on separation, the employee is entitled to waiting time penalties. Waiting time penalties consist of a full day of wages for each day that payment is delayed, including weekends. Waiting time penalties can accrue for up to 30 days after discharge. An employer who fails to pay even a few dollars that are owed to the employee may be subject to penalties quickly adding up to thousands of dollars.

    8. Vacation Policies

    California does not require employers to provide paid vacation leave to employees. Many employers, however, elect to provide vacation leave as an incentive to employment. As mentioned, accrued vacation hours are considered earned wages. An employer, therefore, cannot deduct an employee’s earned vacation and owes accrued vacation at the time of termination.

    Because accrued vacation is considered wages earned, employers may not have a “use it or lose it” policy. Accrued vacation leave must rollover from year to year. Employers, however, are entitled to place reasonable caps on accrued vacation leave. That means an employee that reaches the vacation cap cannot accrue additional vacation leave until the employee uses enough vacation leave to bring the accrued vacation below the cap. California has not defined what constitutes a “reasonable cap” on accrued vacation leave. The consensus, however, is that a “reasonable cap” is not lower than 1.5 times the annual vacation allotment. For example, if an employee receives eighty hours a year for vacation leave, the cap on vacation leave should not be less than 120 hours.

    9. Disability Compliance

    Disability is, by far, the basis for more discrimination claims than any other protected category in California. This is because the legislature has established a very broad definition of what constitutes a disability. Under the Fair Employment and Housing Act (“FEHA”), an employer is required to engage in the interactive process with an employee who the employer knows, or reasonably believes, is disabled. This means an employer can be obligated to conduct an interactive meeting if an employee makes a seemingly innocuous statement, such as, “I’m just so anxious all the time,” and the statement could indicate the existence of an emotional disability. An employer can also be obligated to conduct an interactive meeting if the employer believes the employee is disabled, which can include visual cues and rumors.

    During the interactive meeting, the employer is first obligated to determine if the employee is disabled. This is usually done by way of a note from a medical provider. Keep in mind that employers cannot request specific details about an employee’s disability. Instead, a medical provider note will generally conclude that the employee qualifies as a person with a disability. The documentation should also include any workplace restrictions. With this information in hand, the employer must determine if the employee is able to perform the essential duties of the employee’s position, with or without accommodations. Some restrictions may make it impossible for an employee to perform the essential functions. The employer must also determine if accommodating the restrictions would create an undue hardship on the employer. Undue hardships can be based on the costs to the employer to implement the accommodations or the impact that the accommodations may have in the workplace.

    The duty to engage in the interactive process is continual. An employer, therefore, is required to engage in the interactive process when an employee provides updated doctor’s notes, when an employee’s restrictions change, and when an employee’s job duties change.

    10. Off the Clock Work

    Employers may be subject to costly lawsuits for having employees work off the clock. Sometimes the violations are straightforward, such as requiring employees to clock out and continue working to avoid paying overtime. Seemingly innocent mistakes can also lead to serious consequences. For example, if an employee must wear protective clothing at work, the employer must pay the employee for the time it takes to change into and out of the protective clothing. Employers who require their employers to submit to theft prevention inspections after work must pay the employees are waiting for and subject to inspections. If an employer requires an employee to report to the office to pick up equipment prior to heading to a worksite, the employee is entitled to compensation starting from when they get to the office.

    * * *

    Employers should take active steps to minimize the risks associated with California’s complex employment laws. These steps include: (1) taking the time to become familiar with general employment laws and employment regulations specific to their industry; (2) working with qualify, competent human resources individuals; (3) establishing compliant internal policies and procedures; and (4) seeking advise of counsel, when needed.

    For more information contact:

    Matthew Wallin

    mwallin@gibbsgiden.com

    (310) 552-3400

    Matthew Wallin is a senior associate in the Los Angeles office where he practices labor and employment law.  He has extensive experience defending private business and public entities in litigation and advising clients on labor compliance issues.  

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