Business & Real Estate Litigation Archives

Haven’t blogged for a while, so here are some random thoughts that come to my rambling mind because the new year is here, and for California employers, both big and small, the annual host of new statutes and mandates have now launched. Would like to say Happy New Year to all those California employers who managed to survive another year.

While you may think the California business climate could not get any worse, it has. Once again the California legislature, in its ongoing effort for worker utopia, has burdened business with a plethora of job killing laws that will, undoubtedly, increase costs and decrease efficiency. But hey, surf’s up and the weather is great.

Here are some of the standout areas that I think you, as a small business employer, need to recognize, since they could seriously
impact your business in this coming year. Enjoy.

1. California Immigration Reform? – Good news. Spread the word. We are now a “sanctuary state” (AB450), which means undocumented (read “illegal”) immigrants have been granted additional statewide protections to shield them from Federal immigration enforcement. What does this mean for the California employer? As of 2018, you may not allow Federal immigration officers access to your workplace without first verifying that they have a judicial warrant or subpoena authorizing entry. Moreover, you cannot voluntarily waive this requirement. The warrant or subpoena requirement also applies to any request by Federal officials to inspect employee records. How you are supposed to know what a real warrant or subpoena looks like is a mystery, but that is of little concern to our political class here in the Golden State. However, you are required to allow inspection of employee I-9 Employment Eligibility Verification forms and other “employment documents” within 72 hours of receipt of a Notice of Inspection (“NOI”) from Federal immigration officials. Also, you are required to post an employee notice that such records are going to be inspected within 72 hours of receipt of the NOI. Your notice must include the name of the immigration agency conducting the inspections, date you received the NOI, the nature of the inspection, and include a copy of the NOI. Your notice should be “conspicuously displayed” (see section 7 below) in an employee work area. Upon request, you must provide an “affected employee” (read unauthorized to work) with a copy of your notice and NOI within 72 hours after your receipt of the NOI. I suspect after receipt of such notice, the “affected employee” may be absent from work. Note that this new statute forbids the re-verification of the employment eligibility of any current employee unless it is required by Federal law. There are hefty fines and penalties for violations—so beware. In some instances, these mandates could place you at odds with Federal immigration laws which also carry financial penalties. Sort of puts you between “a rock and a hard place” so to speak. Good luck. Better have your counsel’s phone number on speed dial since I suspect it will be needed quite frequently.

2. Minimum Wage Redux – Ring in the new year with a raise in the minimum wage. The 2018 statewide minimum wage for employees of companies with less than 25 employees is $10.50 per hour. For all others it is $11.00 per hour, and the minimum wage will continue to increase each year thereafter until 2023 when it hits the magic number of $15.00 per hour. Thereafter, the minimum wage will be indexed to the consumer price index. Good luck with that. If raising the minimum wage is good public policy, why not raise it to $25.00 per hour or $50.00 per hour. It’s simply economic nonsense. The ultimate result will be entry level jobs lost, increased automation, especially in the service industries, and increased prices passed on to the consumer. But hey, it makes the politicians feel good and the unions love it. If the bottom goes up, it tends to push the other pay brackets higher. So in 2023 will $15.00 per hour buy more than $10.00 per hour buys today? I would not take that bet. State or Federal mandated minimum wage is fine “feel good” legislation as long as it remains below the lowest entry level market wage rate. Otherwise, it costs jobs and fuels inflation. Just more social silliness out of Sacramento.

3. California Equal Pay Act (“EPA”) – Originally enacted in 1946, the statute (Labor Code section 1197.5) provided for equal work, equal pay despite gender differences. Seems fair, but wait. Prior salary could be a legal basis for unequal pay. Obviously this put women at a disadvantage since they were traditionally paid less than their male counterparts. This was corrected in 2016, which eliminated prior pay as a legitimate reason for pay disparity. Also the statute was amended to change the “equal work” requirement to “substantially similar” work, and the burden is upon the employer to show that the work is so different as to justify unequal pay. The EPA was further amended in 2017 to protect race and ethnicity and allows employees to discuss their pay rate with others without fear of employer retaliation . What this means, “if it looks like a rose, smells like a rose, it is still a rose just with a different name.” You, as an employer, must be able to show that wage disparity is based on factors other than gender, race, ethnicity and/or prior salary. In short, people must be paid the same when doing the same or substantially similar jobs. If in doubt, be safe and err on the side of caution. Pay a little more now or pay a lot later, but pay you will. Remember, employees are not your friends and some employment lawyers are predators just waiting to pounce. For specific questions about a particular situation, spend a few bucks and consult counsel.

4. Paid Family Leave Act (“PFLA”) – This year, PFLA has been changed in two important ways. First, it now applies to all California businesses with twenty or more employees who work within a 70 mile radius of a company’s office. The threshold fifty minimum number of employees requirement has been reduced for PFLA, but still remains in effect under California Family Rights Act (“CFRA”) and Federal Family Medical and Leave Act (“FMLA”). Although all of the acts seem somewhat similar, they are decidedly different—so don’t be confused—get help. Second, under PFLA the amount paid to the worker taking leave has been increased from 50% of gross wages to 60% or 70% depending on the employee’s gross wage rate. The lower the wage rate, the higher the percentage payment. Coupled with increases in the minimum wage, these changes will mean an extra financial burden on small businesses. Business as usual in our state capitol. Ultimately, these added costs will lead to price increases, which will put California businesses at a competitive disadvantage with those in other states. This costly scenario has been played out time and again with no discernible effect on our Sacramento lawgivers. Good for employees maybe. However, if their job disappears because of cost increases and mandated benefit considerations, maybe not so. All you small employers get ready to rock, again.

5. Commission Salespersons – The courts in many states, including California, have held that wage and hour statutes apply to some commission salespersons, including mandated payment for rest breaks and overtime. This is a real trap for the unwary employer, since violation of one statute allows “stacking” of other related labor code violations, fines, penalties, and attorney fees. It can get very expensive very fast. In California the general rule is that commission salespersons are exempt from overtime requirements if they are paid a base salary of at least one and one-half the minimum wage (which is going up, up, up) per weekly period. For example, if the minimum wage is $10.00 per hour, then the employee’s base pay must be $15.00 per hour in order to be classified as exempt. Any commissions then earned by the employee should be in addition to his/her base rate. While base may still be deducted from commissions earned, the better practice is not to deduct from employee commissions. It could be cheap insurance against future litigation. There will be situations where the employee is earning a base of just minimum wage plus commissions. In that case, the employer must pay for rest breaks and overtime. Note that the employee commissions do not count toward exempt status even if the weekly average would be more than one and one-half the minimum wage. However, the amount due the employee for rest breaks must be calculated using his/her average weekly wage including commissions. Overtime must also be calculated at one and one-half times average wage including commissions for any work over eight hours a day or double time for work over twelve hours a day or for any time over a forty hour work week. Be sure that your employee is correctly documenting all hours worked including any overtime. This area of the law is evolving in guess who’s favor. So be very careful and conservative in approaching the California commission trap.

6. Ban the Box – In an effort to help potential employees with prior criminal convictions, it is now prohibited to ask about such convictions on an employment application (AB 1008). This new requirement applies to those of you who have five or more employees. Misguided, perhaps. Helps those who have “paid their debt” obtain gainful employment. We shall see. Once you have made the provisional offer of employment, you may then inquire as to the prospective employee’s past misdeeds. You need not hire if their past transgressions would impact the prospective employment position. However, if it is not employment position related, then it cannot be a reason not to hire. There are applicant notification requirements, so be very careful. This is another trap for the unwary for you employers and, once again, caution should be the norm. Whether this is good public policy or not is up for debate. What is not debatable, this is another state mandate on already over regulated and over burdened California’s small businesses. Good luck with that.

7. Posters, posters who’s got the posters – The number of state mandated employee information posters required to be “conspicuously displayed” in an employee work area has morphed over the years into a virtual wall of words. For 2018, a number of new posters have been added for your and your employees reading pleasure. For a complete updated set of these literary gems, go to www.calchamber.com. All of the required posters can be downloaded, printed, and “conspicuously displayed” as required by our “nanny” state.

8. An ounce of prevention and all that. Remember, if in doubt about any area of employment law or employer conduct, contact your counsel and seek advice. Given the present litigation climate, it will be money well spent. May 2018 be a prosperous one for you despite the many legal roadblocks and pitfalls. Not to sound too cynical, but if it all is getting too much to bear: Arizona, Texas, Nevada, and Utah are calling. Until next time, Aloha.

Many small businesses rely on independent contractors to provide various services that are needed to exist in this increasingly complex business environment. Perhaps the most conspicuous independent contractors are professionals, such as doctors, attorneys, and accountants. However, the use of independent contractors is not confined to these visible professions. In fact, you can find the use of independent contractors sprinkled throughout the trades and general workforce.

For small businesses, the use of independent contractors as a part of their business model offers many advantages. The business does not have to withhold income taxes or deduct the usual suspects such as FICA, SDI, unemployment insurance, etc. Nor does the business have to contribute its matching share to those social programs. There are other advantages. Independent contractors are not subject to the state’s labor laws, including Department of Fair Employment and Housing (“DFEH”) complaints, state wage and hour statutes, Federal Fair Labor Standards Act (“FLSA”) provisions, worker’s compensation insurance, as well as a host of other laws and regulations aimed at protecting employees. The very term “independent contractor” denotes an independent service provider contracted with, but not employed by, a business or person. Or does it?

California is the archetypal “nanny” state and is very concerned about the welfare of all of its “children,” especially those employed by the “evil” businesses whose sole purpose is to lie, cheat, and steal. It’s no wonder that California’s maze of statutes, codes, regulations, and rulings help make it the 49th worst place to do business in the country. Oh well, at least the weather is great.

But, I digress. Given the state’s paternalistic attitude, it is not surprising that much labor litigation has revolved around the issue whether a service provider is a true “independent contractor” or a de facto employee. For the business, a finding of the latter can be a financial disaster of titanic proportions, including fines and penalties that can reach upwards of $25,000.00 per day, as well as the spectre of class action litigation. Such misclassification of service providers should be avoided at all costs. Any reward of avoiding some taxes or benefits is simply not worth the risk. Just ask Fed Ex, SuperShuttle, and Uber, just to name a few.

How can you tell who is truly “independent” and who is not? Over the years the legislature and courts have developed a “laundry list” of non-exclusive traits that distinguish an independent contractor from an employee. Notice I said non-exclusive, since neither politicians nor judges like to be pinned down if it can be avoided. You also have to understand that there is a presumption of employment embodied in the Labor Code. This means, if someone is working for you, they are an employee unless you can prove otherwise.

In no particular order the following points should provide some guidance as to “independent” status:

Does the independent contractor maintain his/her own office or does your business provide the work space?
Does the independent contractor have other clients besides your business?
Is the independent contractor a corporation, LLC, or some other legally recognized entity, or is he/she just an individual providing a service?
Does the independent contractor have a business license and carries business and worker’s compensation insurance?
Does the independent contractor set his/her own hours and may decline jobs or assignments he/she does not wish to pursue?
Is the independent contractor required by your business to wear a certain uniform or use the organization’s equipment such as specially marked trucks? Listening Fed Ex?
Does the independent contractor have employees to conduct its business?
Does the independent contractor provide your business with a periodic itemized statement or invoice detailing the services provided?
Are your relations with the independent contractor contractual and not terminable at will by you?
Is the independent contractor performing work not in the ordinary course of your business?
Does the independent contractor have a license issued pursuant to the Business and Professions Code?
Is the independent contractor performing work that requires a particular skill or knowledge?
Is the independent contractor responsible to you for the result of his/her work rather than control by you of the means by which the result is accomplished? This is the famous “control of work” test embodied in the Labor Code.

For you, the small business person, what seems to be “win-win” can be a real “loser.” Some would-be employees will suggest they be treated as independent contractors—also known as “1099 service providers”—in order to avoid withholding taxes and their contribution to the state’s other mandated employment programs. Simply put, it’s a matter of more money in his/her pocket every pay period. It seems like this arrangement would be a “win” for both of you since less taxes are better than more and whose to know?

Of course, all good things come to an end. Typically, this occurs when you want to terminate the arrangement or when the “1099 service provider” is injured on the job. All of a sudden he/she claims worker’s compensation benefits or files for unemployment or disability. Wonder of wonders, now they want to be classified as employees for, what else, the benefits. This is when EDD begins its investigation of your business practices and you are on the hook for all sums that you should have paid, plus interest and penalties. Good luck with that.

The bottom line is, be very careful about utilizing “independent” contractors unless they are truly “independent.” Keep accurate records of each transaction and document their independent contractor status. Remember, as with employees, those who would be “1099 services providers” are not your friends.