California’s employers are burdened with a long list of onerous regulations, so it’s no surprise that many employers fail to recognize the daunting requirements of the California Labor Code -- until it’s too late.
The portion of the Labor Code addressing employee compensation spans 44 pages, approximately 300 statutes and 21,000 words. California’s employers are expected to comply with every word, and the laws provide no forgiveness: Either an employer paid its employees in accordance with the Labor Code, or it did not. Industry “norms,” “standard practices” and employees’ informal “agreements” do not matter. The only question is whether the employer adhered to the Labor Code.
The penalties for failure to comply are punishing. If the employer has not paid employees correctly, employees may seek unpaid wages, statutory penalties, civil penalties, waiting time penalties, interest, and, of course, attorney fees. An attorney for a disgruntled employee only needs to find one deficiency in an employer’s wage practice to bring suit, to represent all other similarly situated employees and to seek attorney fees. Even large companies with sophisticated legal teams and human resources departments routinely underestimate the Labor Code and are forced to pay the piper.
There are ways to lower the risk. One of the most useful tools is a well-crafted arbitration agreement. Two recent cases from the United States Supreme Court have affirmed that class action waivers in arbitration agreements must be enforced. Employees who execute arbitration agreements must adjudicate their disputes through binding individual arbitration instead of speculative, costly class-action lawsuits. Arbitration agreements, if drafted correctly, can save companies millions.
Employers must also keep the basics in mind. California law presumes that all employees must be paid an hourly wage with overtime. Several requirements must be met to pay employees any form of compensation other than an hourly rate with overtime. A common mistake includes paying a salary to employees who do not perform “exempt” tasks, such as managerial duties. Similarly, paying commissions does not necessarily excuse an employer’s obligation to pay overtime. Few employers know that even by paying a bonus to an hourly employee, they may be triggering an obligation to pay additional overtime on the bonus. Employers must also ensure that hourly employees have a reasonable opportunity to take a 30-minute, uninterrupted, off-duty meal period before the employee completes the fifth hour of work, a common source for lawsuits. Don’t try to escape the Labor Code by classifying individuals as independent contractors; misclassifying employees as independent contractors can cost employers enormous sums, including a fine of up to $25,000 per employee.
-Submitted by Fisher & Phillips LLP