The Top Ways for an Employer to Avoid Getting Sued
Employer compliance with state and federal labor laws is an increasingly critical and difficult issue. Given the complexity of the labor laws, employers often unintentionally violate employment laws, simply because they are unaware of changes in the law or they are trying to provide some flexibility for an employee or to save money for the company.
Below is a list of the top 17 mistakes that may lead to employment lawsuits and recommendations for how to avoid getting sued. This article discusses employment practices under California and Federal law. To the extent, you have operations in other states; you should look at the employment laws of those states as they may differ from California law. Additionally, employers should be aware that certain California cities may also have their own rules on employment matters, especially concerning the minimum wage rate and paid sick leave.
1. Exempt and Nonexempt Employee Classification. Employees are classified as either “exempt” or “nonexempt”. An exempt employee is paid a set salary regardless of the numbers of hours worked in a week, whereas a nonexempt employee is paid on an hourly basis. Some employers choose to pay their non-exempt employees on a salary basis, but that is truly irrelevant and the employee remains non-exempt. If an employee is an exempt employee that means that they are “exempt” from overtime, meal and rest breaks and time-keeping requirements. So the question is whether people you are treating as exempt are truly exempt. Under both state and federal law, only certain types of positions may be classified as exempt.
- General Rule: Typically, exempt employees are high-level executives, administrative or professional employees, certain artists and outside sales staff. Titles are irrelevant in the determination of whether a person is exempt or nonexempt. Effective December 1, 2016, the minimum annual salary threshold that an exempt employee must receive is $47,476 per year, and that is subject to increases.
- Recommendation: Review the job duties and responsibilities of all exempt employees to determine if they should be classified as nonexempt.
2. Independent Contractor Status. Similar to Item #1, it may be tempting for an employer to classify people as “independent contractors” rather than employees as there are many benefits to an employer to paying someone as an independent contractor. Nonetheless, similar to the exempt/nonexempt classification, there are limitations as to who may be considered an independent contractor.
- General Rule: While each government entity has their own definition of “independent contractor status”, the primary factor is the degree of control: who determines the manner in which the work is done, how it is performed, who supplies the tools and equipment and when and where the work is performed? Is the work being done a regular part of the employer’s business?
- Recommendation: Review the job duties and responsibilities of all independent contractors to determine if they should be classified as employees.
3. Meal and Rest Breaks. It is common for an employee to want to skip lunch one day in order to leave early or to take a late lunch in order to go to a doctor’s appointment. Nonetheless, under state law, all non-exempt employees are entitled to certain meal and rest breaks. There is no exception to the law applies even if the employee requests to skip or take a late lunch. Failure to provide the meal or rest breaks within the required time frame can result in the employer owing the employee one additional hour of pay.
- General Rule: All non-exempt employees must be provided at least a 30-minute, off-duty meal period for every five hours of work. These employees are further entitled to at least a 10-minute rest break for every four hours of work. If practicable, the rest period should be provided in the middle of the four-hour shift. Unlike meal breaks, an employee must be paid for the rest break.
- Exception: When an employee does not work more than 6 hours in a workday, the meal period may be waived by mutual consent of both the employer and the employee. And when an employee works more than 10 hours per day but less than 12 hours, the second meal period may be waived by mutual consent provided the employee took the first meal period. While you are not required to have written waivers, it is advisable to have the employee agree to any waiver in writing.
- Caution: An employee should be off-duty when he or she takes a meal break, meaning you cannot require the employee to remain on the premises and/or be “on-call”.
- Exception: On-duty meal periods are only legally permitted for an employee who works over 6 hours when the nature of the work prevents an employee from being relieved of all duties, the parties agree in writing to the on-duty meal period and the employee is paid for the meal period.
- Recommendation: Review your policies and procedures for providing employees with meal and rest breaks. You should further review your recordkeeping practices and verify they reflect that you timely provide your employees with their meal breaks.
- As a side note, we have had employers who simply cannot allow their employees to take rest or meal breaks based on the nature of the work being done. There is nothing illegal about that. However, if that is the practice, then you need to make sure that the employee is receiving the additional compensation that they are entitled to.
4. Hours of Work/Overtime. Similar to item #3, an employee may want flexibility in his or her schedule. An employee may want an alternative work schedule or ask to take a day off and offer to work extra on the other days in order to make-up the time. Nonetheless, when considering such requests, an employer needs to be cognizant of the fact that there are restrictions under both state and federal law as to the number of hours an employee can work in a day or in a week or even the number of days an employee may work in a row without the payment of overtime.
- General Rule: The California labor commission’s website at http://www.dir.ca.gov/dlse/faq_overtime.htm provides a good overview of California’s Overtime Laws – but it is basically that overtime needs to be paid if the employee works more than 8 hours in a day or more than 40 hours in a week.
- Recommendation: If you use a payroll service, make sure the vendor’s system is up-to-date on the current laws and automatically calculates overtime.
- Be careful about alternative schedules. If you want to institute an alternative workweek schedule such as allowing employees to work four 10 hour days, there are specific steps that you will need to follow in order to properly adopt an alternative schedule, including holding a formal election.
- Be careful about make-up time. If an employee requests make-up time, there are limitations as to how they may make up time: they must be making up the time in the workweek in which the time is to be or was missed; they work no more than 11 hours in a day or 40 hours in a week; the employees request is in writing.
5. Harassment and Discrimination Training. An employer has an affirmative duty to take reasonable steps to prevent and promptly correct harassing and/or discriminatory conduct, and training can be a vital component. It is important to keep in mind that the law presumes that once a manager or supervisor is aware of harassment, the company is also aware and has a duty to correct the problem.
- General Rule: Employers with 50 or more employees are required by law to provide 2 hours of training for supervisors every two years. Even if you do not have 50 or more employees, training is highly recommended.
- Recommendation for training: In addition to offering your managers and supervisors mandatory sexual harassment training, consider investing in training on topics such as discrimination, disability and wage-and-hour laws. We have attorneys in the office that are available to provide the training.
- Recommendation for handling complaints: Review your policy and procedure for handling workplace complaints and make sure your managers and supervisors are aware of the policy. Furthermore, take all workplace complaints seriously and conduct an objective and comprehensive investigation.
6. Leave of Absence. For a small business, it can be challenging when an employee takes a leave of absence. Nonetheless, employees have legal protections when they are away from work for various reasons, including workers’ compensation, disability, pregnancy, family and medical leave, military leave, jury duty, etc. Employees further have protection from retaliation for taking the leave.
- General Rule: If you want to terminate an employee while the employee is on a protected leave, or soon after the employee returns to work, you will have to prove that the termination was for a legitimate, nondiscriminatory business reason, unrelated to the protected leave.
- If you want to make changes or adjustments to an employee’s job duties or responsibilities when they return from protected leave, then you will have to prove that the change was not retaliation for taking leave but was for a legitimate, nondiscriminatory business reason, unrelated to the protected leave.
- Recommendation: Review your policies and procedures concerning employees taking protected leave. If an employee is to be terminated while on leave or soon thereafter, consider the reason for his or her termination and make sure you have adequate records to document the reason for the employee’s termination.
7. Final Paycheck. Employees who quit or are terminated often do not return company property such as laptops, cell phones, uniforms or tools. While it may seem reasonable to hold onto an employee’s final paycheck until the employee returns company property or finalizes certain paperwork, legally an employer must distribute final pay according to specific timelines. In California, final paycheck deadlines carry a hefty penalty if the deadline is not met.
- General Rule: If an employee is terminated or quits and gives at least 72 hours’ notice, the employee’s final check must be ready on the last day of work. If an employee quits without giving at least 72 hours’ notice, you have 72 hours to prepare the final check. If you terminate someone on the spot, the final paycheck should be given immediately.
- The final check must include payment for all hours worked through the last day, including any overtime, as well as any accrued and unused vacation.
- If you are unable to provide the check in a timely fashion, then the final paycheck should include additional pay through the day in which you do pay.
- Recommendation: Review your policies for issuing final paychecks and make sure it complies with the law.
8. Deductions from wages. In certain circumstances, an employee owes his or her employer money. For example, an employer may loan one of its employees’ money or an employee uses his or her corporate credit card for a personal expense. Although it may be simple to deduct the amount an employee owes from his or her next paycheck, employers are prohibited from doing so under state and federal law.
- General Rule: Legally employers are only authorized to deduct the following items from paychecks: federal and state taxes, Social Security, state disability insurance and certain benefits, including health insurance or 401k.
- Recommendation: If you loan money to an employee, you should have the employee sign a promissory note that has been reviewed by your attorney. The employee should then make payments to you, according to the specified payment schedule.
- If you make any other type of payment on behalf of an employee for which repayment may be required, you should separately invoice the employee for the amount.
- If the employee agrees that you may deduct the amount due from their paycheck, you need to get that in writing at the time the deduction is to be made.
9. Vacation Policy. Employers may not implement a ‘use it or lose it’ vacation policy to avoid paying out vacation at termination, however, an employer may place a reasonable cap on the accrual of vacation time.
- General Rule: When an employee is terminated or quits, an employer must pay the employee accrued and unused vacation at the current rate of salary.
- Recommendation: In order to limit your liability, you may consider implementing a reasonable cap on vacation accrual. While reasonable is not defined, it typically is 1.5 to 2 times the annual accrual. For example, an employer’s policy provides for up to two weeks of accrual each year and caps the accrual at four weeks. If an employee has four weeks accrued and unused, vacation time no longer accrues until such time as the employee takes vacation and falls below the cap. The benefit to this is that it limits the amount of vacation time that can be accrued (and owed at the time of termination.) However, at the same time, it can generally cause employees to take vacation time once they reach the cap as they know they are no longer accruing vacation time.
10. Sick Pay. Due to a recent change in California law, employers are required to offer a minimum amount of sick leave to employees each year.
- General Rule: An employer must provide each eligible employee with three days or 24 hours (whichever is greater) of paid sick leave each year. There are very few exceptions to California’s sick pay law. It applies to most kinds of employees, including part-time workers, temporary and seasonal workers, and employees of staffing agencies and contractors.
- An employer can choose one of two different methods for providing paid sick leave. First, an employer may select the lump sum or up-front grant method, where the employer will grant the full amount of sick leave at the beginning of each year. You do not need to carry over any unused sick leave to the next year if you use the lump sum method. Second, an employer can select the accrual method, where the employer will accrue sick leave for an employee based upon the employee’s hire date. Employees can roll over up to 48 hours of untaken sick leave, although you can still limit the amount of sick leave taken to 24 hours a year.
- Recommendation: Review your record keeping and pay stub policies. You are required to keep records about how much paid sick leave employees earn and use for a period of 3 years. You are further required to provide employees with information about how much paid sick leave the employee has available to use on their pay stub or on a separate document issued the same day as their paycheck.
11. Pay Stub. Employers are required to include certain information on pay stubs when paying wages. In California, failure to provide a pay stub or failure to include the required information on a paystub carry hefty penalties.
- General Rule: Paystubs are required to have the following items on it: Employer’s name and address; employee’s name and last four digits of social security number; inclusive dates for when employee is being paid; gross wages earned; the applicable hourly rate and total hours worked for hourly employees; all deductions; and net wages earned.
- Recommendation: Periodically review your employees’ paystubs and make sure that they reflect the required information.
12. Off-the-clock Work. Employers must pay their employees for all the time they work. Remote work is a fact of life for many companies and now many employees are expected to periodically perform work outside of normal business hours. To the extent a non-exempt employee does any work during their off-time, he or she must be paid for that time.
- General Rule: If you require your employees to do any training, pre-shift meetings or workshops, then you must pay them for their time. For example, a manager cannot talk to an employee about work related matters prior to allowing the employee to punch in for the day or waiting until after the employee punches out.
- Caution: Be careful about calling your non-exempt employees during their off-time or requiring them to periodically check and respond to their email, text messages or voicemail after hours.
- Recommendation: Make sure your time-keeping system can adequately track all of your employees’ time, including time they spend on work matters when they are away from the office.
13. Paying an Employee for Travel Time. Under both Federal and California law, while employers do not have to pay their non-exempt employees for an ordinary commute to and from work (even if an employee reports to different locations), employers do have to pay their employees for travel time that is substantially longer than an ordinary commute.
- General Rule: Travel time is measured by the difference between the time it normally takes an employee to get to work and the time it takes the employee to travel to the distant worksite. For example, if an employee typically spends 1 hour in travel time per day (30 minutes to/from work) and then the employee is required to go to an alternate work-site and spends 3 hours in travel time (1.5 hours to/from work site), the employer must pay the employee for 2 hours of travel time.
- Employers have the option to pay employees for their travel time at a pay rate lower than the usual rate of pay. This rate may be as low as the minimum wage. Nonetheless, an employer must establish a separate rate of pay for travel before the work is performed; otherwise the employees’ regular hourly rate must be used.
- Caution: If you decide to implement a lower rate for travel time, it can impact the employee’s pay stub as you need to accurately itemize all applicable hourly rates and corresponding numbers of hours worked. It can further affect the calculation for the employee’s regular hourly rate and regular overtime rate.
- Recommendation: Make sure your time-keeping system can adequately track travel time. This is especially important if you opt to use a separate pay rate for travel time.
14. Reimbursement for Employee Expense, including travel and mileage. An employer is obligated to cover employees for all necessary expenses incurred by employees directly connected to their employment. An employer generally satisfies this obligation either by reimbursing an employee for a given expense or by providing the employee with the equipment to insure that he or she does not incur the expense in the first place.
- Tools and Equipment: An employer must provide its employees with all necessary tools and equipment required for them to perform their jobs. However, employers may require employees to supply their own hand tools when an employee earns at least twice the minimum wage and when hand tools are customarily required in the trade.
- Uniforms: If an employer requires its employees to wear uniforms as a condition of employment, then the employer must pay for and maintain such uniforms.
- Mileage: If an employer requires its employees to use their vehicles for work-related activities, then the employer must reimburse the employee for expenses related to the use of the vehicle. This does not include use of a personal vehicle to commute between home and work. An employer may reimburse an employee for business use by either (1) reimbursing the employee for the actual expenses associated with the use of the vehicle, such as gas and repairs, or (2) by adopting a mileage reimbursement rate.
- Mileage Reimbursement Rate: The easiest method for reimbursing employees for personal use of their vehicles is by selecting a standard mileage reimbursement rate. Under this method, the employee will keep track of how many miles he or she uses his or her vehicle for business reasons. Thereafter, the company reimburses the employee for the number of miles multiplied by the mileage rate. A company must select a reasonable reimbursement rate, which covers gas, maintenance, insurance and damages resulting from accident or theft. Many employers simply adopt the mileage rate set by the Internal Revenue Service (“IRS”). For 2016, the IRS’ standard mileage rate is 54 cents per miles driven.
- Travel: If an employer requires its employees to travel away from home on business, then the employer must reimburse the employees for costs associated with meals, lodging and other incidental expenses.
- Recommendation: Review your reimbursement policies, including your policies related to mileage and travel.
15. Reimbursement for Cell Phone & Home Internet Usage. Similar to #12, you may be required to reimburse your employees for at least a portion of their personal cell phone bills and/or for their home internet access. As discussed above, remote work is becoming a fact of life and many employees are required to take phone calls or check their email and perform work outside of normal business hours.
- General Rule: Many companies implement a “Bring Your Own Device” (BYOD) policy, where employees are required to use their personal cell phones or other devices for work-related matters. To the extent you have this type of policy; you must reimburse your employees for a reasonable percentage of the cost. Even if you do not expressly have this type of policy, if you require your employees to be accessible by phone or email outside of work, then reimbursement is still required.
- Additionally, if you have an employee who works remotely when he or she is doing work outside of normal business hours, you may be required to reimburse them for a portion of his or her bills even if he or she has the option of coming into your office. For example, you periodically call an employee on the weekend with work requests and the employee does the work from home. You need to reimburse that employee for a reasonable cost of the expense. While the employee may have the option of going into your office and working from there, it is not unreasonable for the employee to instead opt to do the work from home.
- Caution: It does not matter if the employee would have the phone or internet at home regardless of whether he or she worked for your company or not, you still must reimburse them for a reasonable percentage of the cost. A recent California Court rejected an employer’s attempt to avoid liability by claiming the employee incurred no marginal cost in performing the remote work.
- Recommendation: Review your reimbursement policies as well as any related policies concerning employees’ accessibility outside of work.
16. Rounding on Time Cards. In order to track employees’ time, employers may utilize time clock systems that reflect when employees arrive and leave each day. Given employees often punch in a few minutes before or after a shift starts, employers may adopt a rounding practice rather than calculating employees pay down to the minute. Under state and federal law, employers are permitted to use time rounding practices provided the scheme is applied impartially and consistently.
- Recommendation: The policy should be applied in a neutral manner that neither benefits the employer or the employee. For example, if a shift starts at 8am and the employer chooses a 10-minute rounding period, then a person who punches in at 7:50 should be treated the same as someone who punches in at 8:10.
- The same policy should be used at the start of a shift that is used at the end. For example, if the employer adopts a 10-minute policy and a shift goes from 8am to 5pm, then the same policy should be used both for punching in at 8am as for punching out at 5pm.
17. Telecommuting. While having off-site “virtual” employees can reduce overhead costs and attract talent by offering a more flexible schedule, it also can create some legal challenges.
- General Rule: If an employee is nonexempt, you still have a duty to comply with wage-and-hour laws and employee reimbursement.
- Recommendation: Review your record-keeping practice and make sure it accurately measures when a remote employee works, including whether they are timely taking meal breaks and properly being paid overtime.
- Further review your expense reimbursement policy for employees who are working remotely.
Overall the key to minimizing your risk of being sued is to make sure your business is in compliance with both state and federal employment laws. It is vitally important for you to review your current policies and procedures to ensure compliance and to provide for any required workplace postings. Additionally, it is crucial that you maintain complete and accurate records, including time-keeping records, accounting records and employee personnel files. A comprehensive record-keeping system not only ensures that your business is in compliance with the law but the records can also be used in the business’ defense in the event of an employee lawsuit.
If you are concerned that your business may be engaging in any of the above identified activities or have any questions about your current policies or procedures, the attorneys at Schwartz Semerdjian are available to assist California businesses with employment law issues. Please contact Ross Schwartz, Dick Semerdjian, Sarah Evans or Sierra Spitzer.