Employment Law Workshop

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EMPLOYMENT LAW WORKSHOP

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Experience Simas & Associates, Ltd. –2002 to presentDeputy Attorney General, Office of the Attorney

GeneralLegal Counsel, Public Employment Relations Board Chief Consultant, California State Assembly,

Committee on Labor and EmploymentPractice Areas

Employment Law and Workplace RegulationProfessional Licensing and RegulationCivil Litigation and AppealsHealthcare Law and Regulation

Steven L. Simas

September 29, 2011, 3:00 - 5:00 p.m.

Exempt/Non Exempt Employees

Independent Contractor –To Be or

Not to Be?

Avoiding Wrongful Termination

Questions

DISCUSSION TOPICS –Day 1

September 30, 2011, 8:00 - 10:00 a.m.

Meal and Rest Periods

The Inside Insurance “Producer”

Conundrum

Brief Overview of Unemployment


Questions


October 1, 2011, 10:00

a.m. – 12:00 noon

Selected Topics from

Day 1 and Day 2


It all starts here…

Demystifying Exempt v. Non-Exempt Employees

Why do we care?Overtime –daily and weeklyMeal and rest periodsLabor Commissioner ClaimsWaiting time penaltiesThree-year statute of limitations for most

claimsFederal Law –Fair Labor Standards ActState Law – Labor Commissioner (Division of

Labor Standards Enforcement)

Exempt v. Non-Exempt

Questions: If Susan is the Office Manager of Acme Insurance

Agency, is she an exempt or non-exempt employee?What if she has business cards that say “Office Manager?”What if she gets paid by the hour and not salary?What if she makes $3000 per month as a salary?

If Bob is the Shop Foreman of Miracle Muffler Shop and supervises the mechanics and flow of work on the “shop floor.” Is he exempt?

If Phil is the Vice President of Purchasing for Solid Gold Productions, a D.J. services company, and makes a salary of $2500 per month, is he exempt or non-exempt?

Exempt v. Non-Exempt (cont.)

General Requirements for an Employee to be exempt:Job title is irrelevant (not even helpful)

“Manager,” “Supervisor,” etc. not helpfulCalling someone a title that sounds exempt such as

“Computer Systems Analyst” which sounds like a specifically exempt position is not relevant

Salary RequirementsThe minimum salary level for exempt employees is $2,773

per month. Calculate this amount by multiplying the state minimum wage of $8.00 by 2,080 hours, multiplying by two and dividing by 12 months ($8.00 x 2,080 = 16,640 x 2 = 33,280/12 = $2,773.33). These amounts are unchanged for 2011.

Exercises Independent Judgment


Exercises Independent JudgmentCommon theme among the specific exemptionsMost common pitfall in employee misclassificationMust be day-to-day part of job and not occasional

DEFINITION:Employee has the power to make independent choices

free from immediate supervision and with respect to matters of significance; OR

Employee must be able to make a recommendation for action subject to the final authority of a superior, as long as employee has sufficient authority for recommendations to affect matters of consequence to the business or its customers.


Types of ExemptionsExecutive Exemption *Administrative Exemption *Professional Exemption *Computer Professional ExemptionOutside Salesperson ExemptionInside Commissioned Salesperson

Exemption *


Administrative Exemption Requirements:

Employee’s duties and responsibilities must involve office or non-manual work;

Directly related to management policies, or general business operations of the employer or the employer’s customers; and

Employee must be “primarily engaged in” the following:Customarily and regularly exercises discretion and

independent judgment involving: Assisting the company owner(s) or employee in a bona fide executive or

administrative capacity; Performing, under only general supervision, specialized or technical

work requiring special training, experience or knowledge; and Executing, under only general supervision, special assignments and

tasks.


Definition of “Primarily Engaged In”:

For purposes of the administrative exemption, “primarily engaged in” means that more than one-half of the employee’s work time is spent engaged in exempt work. This means an exempt employee spends more than half of his/her time performing duties such as advising management, planning, representing the company, negotiating, promoting sales, researching business opportunities, making company policy, and purchasing supplies and materials.


Eicher v. Advanced Business Integrations, Inc.

The employee was a “senior consultant” for installing a software program. He spent half of his time in the office and the other half training customers at their sites. While he met the minimum salary requirements and worked 40 or more hours per week, the court held that his primary duties involved the day-to-day business of implementing the software and training. Because he did not participate in policy making or otherwise impact the company operations, he did not qualify for the administrative exemption. The court confirmed he was a production worker who did what he was told by his supervisors. Therefore, he was not exempt. 151 Cal.App.4th 1363 (2007).


Executive Exemption Requirements (primarily engaged in):

Has duties and responsibilities involving the management of the business of a customarily recognized department or subdivision of the business;

Customarily and regularly directs the work of two or more other employees;

Has the authority to hire or fire other employees or to make suggestions and recommendations regarding hiring, firing, advancement, promotion; and

Customarily and regularly exercises discretionary powers.


Problems with Executive Exemption

Managing business or working in it?Working managers are primarily

engaged in working such as taking orders, serving customers, etc. which means they do not qualify

Taco Bell Example


Professional Exemption Requirements (primarily engaged in):One who is primarily engaged in a commonly

recognized occupation as a learned or artistic profession such as work that requires advanced knowledge in a science or learning field customarily acquired by a prolonged course of specialized intellectual instruction and study.

Usually law, medicine, dentistry, optometry, architecture, teaching, accounting, engineering.


Other ExemptionsCommissioned Inside Sales Employee Exemption

Confusing and difficult to comply with Wage Order 4 (insurance companies) Earnings must be 1.5 times minimum wage and over 50% of

employee’s earnings must be from sales Guaranteed draw may disqualify Federal law does not consider insurance sales a “retail

establishment” so exemption from overtime may not applyOutside Sales Employee Exemption

18 years old or older Spend more than 50% away from office selling, taking orders, or

signing contracts for orders Cannot have more than 50% incidental work (must be sales)

Computer Professional Exemption (not discussed)



Let’s look at Susan: Which Exemption may fit her job?Office Manager

Acme Insurance Agency

Examine her dutiesWhat is she

“primarily engaged in (over 50% of her time)?

Does she answer phones? Make coffee? Supervise people?

Administrative ExemptionDo Susan’s duties involve office or non-manual work?Do they directly relate to management policies, or

general business operations of the employer or the employer’s customers?

Do she (more than 50% of the time) regularly exercise discretion and independent judgment involving:

Assisting the company owner(s) or employee in a bona fide executive or administrative capacity;

Performing, under only general supervision, specialized or technical work requiring special training, experience or knowledge; and

Executing, under only general supervision, special assignments and tasks.


Executive Exemption applied to SusanIs Susan primarily engaged in:

The management of the business of a customarily recognized department or subdivision of the business?

Customarily and regularly directing the work of two or more other employees?

Doe she have the authority to hire or fire other employees or to make suggestions and recommendations regarding hiring, firing, advancement, promotion?

Does she customarily and regularly exercises discretionary powers?


Consequences of Misclassifying Workers as Exempt/Non-Exempt Employer could be ordered to pay overtime

All hours worked beyond 8 in a day All hours worked beyond 40 in a week Possible double time for more than 12 in a day or on 7th consecutive day

Statute of limitations is long Three years to file suit (Labor Code section 98.1) Three years to file a Labor Commissioner claim (Labor Code section 98.2) Four years to file suit under the California Unfair Competition Law (See

Cortez v. Purolator Air Filtration Products Company (2000) 23 Cal.4th 163). Labor Commissioner Civil Penalties

Up to $100 per employee plus 25% of underpaid wages Up to $200 for subsequent offenses and 25% of wages Can go back the entire 3 years!

Failure to pay minimum wage (Labor Code section 223)


Independent Contractor: To Be or Not To Be?

And regardless of the intent of the parties, this is always the question.

Hypotheticals

Stewart does office work for your agency part time after his classes at the University where is studying Political Science. His schedule depends upon his class schedule and changes quarterly. He is paid by the hour for his time Stewart and you have a written agreement where both parties confirm that Stewart is an independent contractor and not an employee. Is Stewart an independent contractor or employee? Why?

Independent Contractor: To Be or Not To Be? (cont.)

Hypotheticals (cont.)

Susan is a dance instructor who teaches at schools, homes and other facilities she selects. She has her own sound system and collects her own fees from customers. While Susan works for three schools, a youth dance program and a church, 90% of her fees come from the Riverdale Dance Academy which hires Susan to choreograph and produce its Spring and Winter Dance Recitals. Is Susan an independent contractor or employee? Why?


For what purpose are we looking at independent contractor status?

Multiple tests for Independent Contractors IRS “Twenty Factors” (payroll taxes)CA Employment Development Department

(unemployment and taxes)Workers Compensation (coverage or not)US Department of Labor (Fair Labor Standards Act)California Labor Commissioner (Wage and hour law) California Common Law (Liability) EEOC/DFEH (coverage of anti-discrimination laws)


Consequences of misclassificationLiability for payroll taxes and penaltiesPenalties and liability for failure to provide

workers compensation coverageFederal and wage and hour law liability for

overtime, meal and rest periods, etc.Civil liability


Generally Classifying Independent Contractors California Common Law Test (No single factor

is conclusive):Right to control worker (most important factor)Right to discharge at-will without cause or noticeSkills required in particular occupationDistinct occupation or businessWho supplies instruments, tools, location for

performingMethod of payment (time versus job)


Recent Cases:

Cristler v. Express Messenger Systems (2009) 171 Cal.App.4th 72 – delivery company switched its drivers to independent contractor status using subcontractor firm. The Court of Appeal held that the most significant factor is who has the right to control the work and restated current California law.

California law uses the "multi-factor" or "economic realities" test enunciated in S. G. Borello & Sons, Inc. v. Department of Industrial Relations (1989) 48 Cal.3d 341


JKH Enterprises v. Department of Industrial Relations (2006) 142 Cal.App.4th 1046Workers were delivery drivers who drove own cars,

had own insurance, used own cell phones, had no training, controlled own route, schedule, order of work performed and signed written contracts and acknowledgements that they were independent contractors.

The Court of Appeal held (any guesses?):


JKH Enterprises Holding:

The hearing officer's decision stated: "Although some of the factors in this case can be indicative of the workers being independent contractors, the overriding factor is that the persons performing the work are not engaged in occupations or businesses distinct from that of [JKH]. Rather, their work is the basis for [JKH's] business. [JKH] obtains the clients who are in need of delivery services and provides the workers who conduct the service on behalf of [JKH]. In addition, even though there is an absence of control over the details, an employee-employer relationship will be found if the [principal] retains pervasive control over the operation as a whole, the worker's duties are an integral part of the operation, and the nature of the work makes detailed control unnecessary. (Yellow Cab Cooperative v. Workers‘ Compensation Appeals Board (1991) 226 Cal. App. 3d 1288 [277 Cal. Rptr. 434]). Therefore, the finding is that these workers are in fact employees of [JKH]."


Avoiding independent contractor issuesUse caution in classifying workers as

contractorsAnalyze the facts surrounding the work to be

done and the worker doing itConsider the consequences if the classification

is wrongIf you cannot tell, make them an employee!Hire legal counsel


The Inside Insurance “Producer” Conundrum

The importance of Exempt versus Non-Exempt classification of employeesArticles from Alliance NewsletterDepends upon job dutiesHire legal counsel to examine this

Two types of “producers” under California LawOutside Salesperson ExemptionCommissioned Inside Salesperson Exemption

The Inside Insurance “Producer” Conundrum (cont.)

Outside Salesperson ExemptionEighteen Years old or olderSpends greater than 50% of work time away

from office selling, taking orders, etc.Commissioned Inside Salesperson Exemption

(Applies only to overtime)Employee’s earnings must exceed 1 and ½

times the minimum wageMore than half of the employee’s compensation

must be commissions (IWC, Wage Order 4)


Definition of CommissionExemption applies to Wage Orders 4

(Professional Services) and 7 (Retail)The employee must be involved principally in

sales activities (not manufacturing or rendering service)

Compensation must be a percentage of the price of the product or service (Ramirez v. Yosemite Water Co.(1999) 20 Cal. 4th 784, 804).


What is not a commissionAuto Mechanics – while they get a percentage

of the sale price of their service, there are not principally involved in sales (Keyes Motors, Inc. v. Division of Labor Standards Enforcement (1987) 197 Cal.App.3d 557, 562-564)

Telemarketers – when their commission is based upon number of subscriptions sold, it is not a percentage of price (Harris v. Investor’s Business Daily (2006) 138 Cal.App.4th 28, 38)


Fair Labor Standards Act (FLSA)Applies broadly to “industries engaged in

interstate commerce” (29 U.S.C. § 202(a)) unless an exemption applies

Employers have burden of proof to show exception to overtime requirement (29 U.S.C. § 207(a))

Employers must prove:Employer is a “retail or service establishment”Each employee’s rate of pay is more than 1.5 times

minimum wageMore than 50% of employee’s compensation was

commissions on the sale of goods


Retail or Service EstablishmentA “retail or service establishment” shall mean

an establishment 75 per centum of whose annual dollar volume of sales of goods or services (or of both) is not for resale and is recognized as retail sales or services in the particular industry.

The “retail concept” does not apply to: “Insurance; mutual, stock and fraternal benefit, including insurance brokers, agents, and claims adjustment offices.” (29 C.F.R. 779.317)


Summary of the Conundrum:California law may or may not apply regarding

overtime only (not meals, breaks, etc.)Federal law does not exempt insurance

producers from overtime as insurance agencies lack the “retail concept” under the FLSA


Meal and Rest Periods

Why is this issue important?

Requirements for Meal Periods

Requirements for Rest Periods

Penalties Statute of limitationsUnresolved issues in the

courts

Why is this issue important?Many employers do not provide meal

and rest periods to employersCan result in significant penalties and

fines from Labor CommissionerApplies to non-exempt employeesThere is much litigation on this issue

most of which involves class actions

Meal and Rest Periods (cont.)

Requirements for Meal PeriodsNon-exempt or hourly employees Required to take a 30-minute meal break if the

employee’s shift:is over 5 hours long andwill not be completed in 6 hours

Meal breaks can be unpaid if the employee is relieved of duty for at least 30 minutes and is free to leave the premises

If the employee’ shift is more than 10 hours, a second meal break of 30 minutes is required.


Requirements for Rest PeriodsNon-exempt hourly employeesEmployers are required to offer non-exempt or hourly

employees a 10-minute rest break for every four hours worked

Rest breaks are generally paid; thus, the employer can require the employees to be on the premises.

California law provides that extended rest breaks must be provided for breastfeeding mothers (Labor Code sections 1030 to 1033).

Unlike meal periods, an employer is only required to “authorize and permit” employees to take rest periods.

Rest breaks may not be combined or added to meal periods, even at the employee’s request.



Hours of Work Rest Breaks 0 – 3.5 0 3.5 – 6 1

6.0 – 10.0 2 10. – 14.0 3 14. – 18.0 4

The number of rest breaks depends upon the length of the employee’s shift as set forth below:

The Penalties Rest Breaks

For each day an employer fails to permit an employee to take a rest break, the employer owes the employee one additional hour of pay

Paid at the employee’s regular rate of pay no later than the next paycheck

Meal BreaksEmployer must ensure the worker takes a meal break, is

free to leave the premises and is free from duty. This is the best practice under California law at this time,

although one federal court has noted that the employer does not have to force worker to take meal breaks.

An employer owes an employee who does not take a required meal beak an hour of pay for each day the employer is out of compliance (Labor Code section 226.7)


Statute of LimitationsThe statute of limitations for an employee to seek

the extra hour of pay per day for missed breaks and lunch periods is three years. The California Supreme Court recently confirmed in Murphy v. v. Kenneth Cole that the hour of additional pay is “wages” and not just a “penalty.” Thus, the employee can go back three years to claim such lost “wages.” (Murphy v. Kenneth Cole (2007) 40 Cal.4th 1094).

For employers, an employee’s claim for three years of missed breaks and meal periods can be financially devastating.


Unresolved issues in the lawMust an employer ensure that an employee takes required

meal breaks? The question of whether a California employer must ensure

breaks and meal periods are taken is the subject of significant litigation in both state and federal courts.

Federal Court in Brown v. Federal Express held that California does not require the employer to ensure that meal periods were taken.

California Court of Appeal agreed in Brinker v. Superior Court. But California Supreme Court has granted review to hopefully

resolve this issue. In the meantime, employers cannot yet rely upon these cases

until the California Supreme Court issues its decision in Brinker and should seek legal counsel. (Brinker v. Superior Court (2008) 165 Cal.App.4th 25).


What governs discipline and termination?Progressive disciplineAvoiding claims of discrimination/retaliationThe mechanics of termination


What governs discipline and termination? At Will Employment Contract Employee Handbook/Policy Manual (Terms of Employment

Contract) At will policy Internal dispute resolution/investigation policies Progressive discipline policies “Just cause” policies

Other Oral or Implied Contracts Was employee “promised” continued employment by someone who

has authority over employee? Implied covenant of good faith and fair dealing Performance reviews Promotions Commendations Lack of criticism

Avoiding Wrongful Termination (cont.)

Federal, State and Local LawsTitle VIIFair Employment and Housing ActProtected types of leave

PregnancyIllnessWorkers compensation

Retaliation/Protected activityTestifying or participating in investigationWhistle blowingFreedom of speech


DisabilityReasonable accommodationInteractive process

Disparate treatment based on protected classDoes sufficient documentation support the reasons

for termination?Support such as counseling memos, attendance reports,

etc.Negative such as warning pregnant employee she is

absent too often or depressed employee she does not “smile” (true example)

Unemployment considerationsLegal ramifications of not terminating employee

(such as harassment or threats to other employees)


Progressive Discipline What is it? Is it required?

Employee manual Fair treatment

Exception for severe misconduct

Avoiding Claims of Discrimination/Retaliation This could be the subject of an entire seminar Top Five Tips:

Train employees regarding company harassment and discrimination policy

Fairly investigate any claims by employees Take prompt action to determine veracity of claims Take prompt remedial action to discipline offending employees Consult legal counsel


The Mechanics of Termination (after deciding to terminate an employee)Final paycheck at the time of terminationWritten notice of termination (EDD has form)Employee Acknowledgement of receiving final

payCOBRA/Cal-Cobra Notices to plan and

employeeEmployee acknowledgement


Eligibility or Unemployment BenefitsAn employee is eligible for Unemployment

Benefits if he or she:Has made a claim for benefitsHas earned $1,300 in one quarter, or had high

quarter wages of $900 and total base period earnings of 1.25 times that amount (UI Code sec. 1281(a)(3))

Is able or available to workIs actively looking for workHas become unemployed through “no fault of the

employee’s own”

Brief Overview of Unemployment

Has become unemployed through “no fault of the employee’s own” (Amador v. Unemployment Insurance Appeals Board, (1984) 35 Cal.3d 671)

Voluntarily quit without good cause Discharged for misconduct

Willful or wanton disregard of an employer’s interestDeliberate disregard of standards of behaviorCarelessness or negligence to such a degree or recurrence that

it demonstrates substantial disregard for employer’s interest Refusal to perform suitable work

Does not meanInefficiencyIsolated negligenceFailure of good performance

Brief Overview of Unemployment (cont.)

Appealing a decision of the Employment Development DepartmentAdministrative Law Judge Hearing

Within 20 days of mailing of the EDD determinationMust be in writing and state the grounds for an appealPresent evidence, witnesses, documentsALJ will issue written decision

Appeal to Unemployment Insurance Appeals Board (UIAB)Within 20 days of mailing of the ALJ’s decisionConfirmation letter from UIABRequest oral or written argument within 10 days of

confirmation letterUIAB will issue written decision

Brief Overview of Unemployment (cont.)

This Power Point Presentation is available at www.simasgovlaw.com/media/blog.

http://www.simasgovlaw.com/media/blog

Steven L. Simas, Esq. SIMAS & ASSOCIATES, Ltd.Government & Administrative Law

Sacramento -916.789.9800 San Luis Obispo -805.547.9300

www.simasgovlaw.com
