California Law Regarding Salaried Employees by inb86405

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									      2006 International

Wage & Hour - How Much Can it
Cost You?

                   November 9, 2006
                     Moderator: Carrie Brodzinski (Beazley)
                     Panelists:   Beth Schroeder (Silver & Freedman)
                                  Joe English (Taylor, Busch, Slipakoff & Duma, LLP)
                                  Jack McCalmon (The McCalmon Group, Inc.)

         Chicago, IL ~ November 8 - 10, 2006
       How Do These Cases Arise?

• Class Actions
• Solo or Multi-Plaintiff Cases
• Audits by the Department of Labor (“DOL”)
  or State Labor Commissioners
• Private Attorney General Statute in
       What Laws Govern Wage &
             Hour Claims

• Federal Law, Fair Labor Standards Act
    Enforced by Department of Labor (“DOL”)
• State Law, State Labor Codes
    Enforced by State Labor Commissioners
• Local Ordinances
        Wage & Hour 101: A Primer

• FLSA generally requires that employers:
    Pay employees minimum wage for all
     hours worked;
    Pay employees 1.5 times their regular
     hourly rate for all time worked > 40 hours
     in a workweek (unless exempt); and
    Keep accurate records of daily and
     weekly hours worked by non-exempt
            How Difficult Is That?

• The FLSA is one of the most complex of all
  federal laws, and one of the most difficult
  for employers to fully comply with
    Written in the 1930s
    Voluminous and technical DOL
    Inconsistent opinion letters
                Broad Coverage

•    FLSA applies to any “enterprise” which
    1. Employees who touch goods/materials
       that have been moved in or produced
       for interstate commerce; and
    2. Annual business dollar volume of
            Covered “Employees”

  FLSA construed broadly in favor of
• Common Exclusions:
    Independent Contractors (in fact, not in
    Volunteers
    Trainees / interns / students learning
     skill or trade for their benefit
                  Hours Worked

• Includes all time an employee is required
  to be on employer’s premises, on duty,
  or at a prescribed workplace

  “The devil is in the details”
        Hours Worked: HOT TOPICS

•   Rest breaks
•   Meal breaks
•   Waiting time
•   On-call time
•   Commuting/travel time
           Minimum Wage

• No matter how pay is determined, it must
  generate an hourly rate of at least the
  minimum wage when divided by the
  number of hours worked in a workweek
    Federal is $5.15/hour
    Many states have higher minimum
     wage laws

Special rules for “tipped” employees
                  Overtime Pay

• UNLESS EXEMPT, employees are entitled
  to overtime pay of 1.5 times the employee’s
  “regular rate” for all time worked in excess of
  40 hours in a workweek
• Certain States, such as California, may
  impose more stringent rules
• “Regular rate” can be complex and confusing
    Salaried non-exempt (What hours does
     salary cover?)
              Regular Rate –
           Federal and State Law

• Overtime is calculated on the basis of an
  employee’s “regular rate”
• Must include “announced and expected”
  bonuses, commissions, and other extra
• Piece rate employees are calculated by
  taking total compensation for week divided
  by hours worked, and may receive a new
  rate every week
              Main Issue…
          Exempt vs. Non-Exempt

• Must meet “salary” test
• Must meet “duties” test

Federal vs. California…there are many
                   Salary Test

• Under FLSA, must receive $455 a week
• Under California law, must receive salary
  equal to two times minimum wage, based on
  40 hour work week – currently $28,080/year
• Minimum wage in California due to increase
  January 1, 2007 to $7.50 an hour, and again
  in 2008 to $8.00
• Computer professionals different - In
  California, must be nearly $98,000 annually,
  adjusted every year
                  Salary Test

• Must pay based on work product not
  hours worked or performance
• No weekly deductions for plant closures
  or jury duty
• No daily deductions, unless taken from
  a bona fide vacation, sick or PTO plan
                Duties Test
             Exempt Employees

• Professional, Administrative or Executive
• Certain computer related employees
• Outside/inside sales employees
               Professional Employees
                    In California…
• Licensed attorney, doctor, engineer, etc., or
• Engaged in occupation commonly recognized as a learned or
  artistic profession (FLSA definition)
    Work requiring knowledge of an advanced type in a field
      customarily acquired by prolonged course of specialized
      intellectual instruction and study or work that is original
      and creative in character in a field of artistic endeavor, and
    Work predominantly intellectual and varied in character
      and is of such character that the output produced cannot
      be standardized in relation to time, and
    Work customarily and regularly requiring the exercise of
      discretion and independent judgment
          Professional Employees
               In California…

• Under Federal law, college degree is
  probably sufficient; however, under
  California law, “prolonged course of
  study” is greater than a four-year
  college degree
• Registered nurses, dental hygienist,
  pharmacists, and paralegals are not
  professionals under California law
• Staff accountants and auditors who do
  not hold a CPA license are usually not
  exempt as professionals in California
              Executive Employees

• Duties and responsibilities involve the
  management of the employer’s business or a
  customarily recognized department or division of
  the business, and
• Customarily and regularly directs the work of two
  or more other employees, and
• Has the authority to hire or fire other employees,
  or effectively recommend such action, and
• Customarily and regularly exercises discretion and
  independent judgment
                Working Managers

• Federal law vs. California – issue regarding
  “primary duty”
• Key – In California, cannot spend more than HALF
  of his/her time on non-exempt functions
    Seating guests, pouring coffee, expediting food,
     stocking shelves, conducting inventory, providing
     customer service, bookkeeping, cooking and
     assisting on a cash register ARE NOT exempt
    Based on actual work duties, not job description!
• “Assistant” managers are always suspect,
  especially in California
         Administrative Employees

• Duties involve either:
   Performance of office or non-manual
    work directly related to management
    policies or general business
    operations of the employer or the
    employer’s customers, or
   Performance of functions in the
    administration of a school system or
    educational establishment
           Administrative Employees

• Customarily and regularly exercises discretion
  and independent judgment, and either:
    Regularly and directly assists a business
     owner, or an employee working in a bona
     fide executive or administrative capacity, or
    Performs under only general supervision
     work along specialized or technical lines
     requiring special training, experience or
     knowledge, or
    Executes under only general supervision
     special assignments and tasks
         Administrative Employees

• Again, cannot perform non-exempt
  functions more than half the time
• Non exempt functions include:
    Bookkeeping
    Clerical functions
    Technical services
    Customer service or support
    Payroll services
    Phone support/receptionist duties
                   Suspect Classes

• Accounting personnel    • Loan officers bank tellers
  below CFO or            • Stock brokers
  Controller level        • Technical service writers
• Customer service,       • Quality control or
  account executives or     assurance
  account managers        • Marketing, public
                            relations, graphic artists
• IT or IS personnel
                          • Screenwriters,
  below manager level
                            development, animators,
• Secretaries, payroll      associate producers,
  clerks, general admin     technical personnel
• Underwriters or
             Computer Personnel
• Primarily engaged in work that is intellectual
  or creative and requires the exercise of
  discretion and independent judgment, and
• Primarily engaged in one or more of the
    Application of systems analysis
     techniques and procedures, or
            Computer Personnel
     Design, development, documentation,
      analysis, creation, testing or modification of
      computer systems or programs based on
      and related to user or system design
      specifications, or
    Documentation, testing, creation or
      modification of computer programs related
      to the design of software or hardware for
      computer operating systems, and
• In California, earns an hourly rate of
  at least $47.81 to be adjusted annually
       Sales Personnel

• Outside Sales
    More than 50% of time outside of office/home
    More than half time dedicated to sales
• Inside Sales
    Earns at least 50% of income on “commission”
    Earns at least 1 ½ times minimum wage
     (currently $405.00 a week in California )
    Only applicable to Wage Orders 4 and 7 in
     California AND “retail sales” under FLSA
    Only exempt from OT, not other rules (such as
     meal and rest breaks)
    BIG issue under federal as well as state law
     (e.g., stock brokers)
         2006 International

And then there is California…

            Chicago, IL ~ November 8 - 10, 2006
          Why the Surge in Wage &
                Hour Cases?

• FLSA dates back to 1930’s, so…?
    Sav-On decision (2005)
      • Allowed classes to be certified more easily
    Cortez decision (2000)
      • Allowed plaintiffs to use Business &
        Professions Code § 17200 as a tool to
        recover unpaid wages and extended
        statute of limitations to four years
    Increased internet advertising by attorneys
        California’s Private Attorney
        General Act – Section 2699

• Civil action by employee to recover
  penalties for certain violations of Labor
  Code where normally no private right of
• Employee gets 25% of recovery; State gets
  the rest
• Employer pays employee attorneys’ fees
• Effective August 11, 2004, SB 1809
  amended Section 2699 to require a 30 day
  notice to DLSE before civil lawsuit can be
                    Rest and Meal Periods
                 California’s Hottest Issue –
                         Meal Period
•   Minimum ½ hour, unpaid meal period for employee working at least
    five hours
       If employee works no more than six hours, meal period may be
           • We recommend the waiver be in writing, but it’s not
             required by law
      Otherwise, under current law, employee MUST actually take
        the meal period
      DLSE has interpreted this to mean that an employee cannot
        work more than five consecutive hours without a meal break
•   Employees must be fully relieved of all duties during the meal
    period unless nature of work does not permit
        On duty, paid meal period
        Very limited interpretation
        Must be authorized in writing with employee right to revoke
           Rest and Meal Periods
                Rest Breaks

• Ten minute paid break for every four hours
• Need only be made available, i.e., need not
  force employees to take them (unlike meal
           Rest and Meal Periods
             What is the Cost?

• If employee does not receive meal or
  rest break, employer must pay one hour
  of employee’s pay for each day in which
  employee does not get all breaks and
  meal periods
• Employers may automatically pay the
  extra hour if the employee works through
  the meal
           Uncertainty in Meal and Rest
                   Break Rules
• Is one hour of additional compensation a “penalty” or a
    If penalty, only one year statute of limitations; if wage,
      up to four year statute (Under Business & Professions
      Code Section 17200).
    If penalty, employee cannot recover other penalties in
      addition to the one hour; if wage, employee would be
      entitled to additional penalties for failing to pay wages
    If penalty, employee cannot recover attorneys’ fees; if
      wage, employee can recover attorneys’ fees.
           Other Hot Topics
            Hot Issues
• Recent Popular Class Action Issues
      Exempt/non-exempt
      Overtime/regular rate/hours worked
      Meal & rest break violations
      Working “off the clock”
      Forfeiture of wages (commissions often at risk)
      Unlawful tip pooling (including managers and
      Unlawful bonus programs
          Other Hot Topics
            Hot Issues

• Recent Popular Class Action Issues
      Time edits/“shaving”
      Reporting/call in pay
      Reimbursement of expenses – Labor Code
      Uniforms and other payroll deductions
      Split-shifts
      Server banking
      Final paychecks
      Unused vacations
          How Much Can a Mistake

• Unpaid overtime or other wages and/or penalties
  per employee
    One year for penalties per California Law
    For wages, three years under Labor Code
    For four years under Business & Professions
     Code section 17200
      Double damages under FLSA
• Attorneys’ fees for actions brought in court
• Cost of defense of the claim
    May be less than you think!
         How Much Can a Mistake
          Cost?...Plus Penalties
• Failure to pay any owed wages upon
    Labor Code section 203 – 30 days
     waiting penalties at employee’s daily rate
• Refusal to pay owed wages
    Labor Code section 225.5 - $100 per
     employee, per violation, plus 25% of
     amount unpaid
          How Much Can a Mistake
           Cost?...More Penalties
• Underpaid employee
     Labor Code section 558 - $50 for first violation,
      $100 thereafter, per violation, per employee
     Labor Code section 1197.1 - $100 for first
      violation, $250 thereafter per violation, per
• Failure to pay minimum wage
     Labor Code section 1194.2 – liquidated
      damages in amount equal to unpaid wages
     Fair Labor Standards Act – double damages
                  Who Has to Pay?

• The Company
• Per new California Supreme Court ruling in
  Reynolds, individuals are NOT liable for most
  wage and hour violations
      May be liable for penalties only under certain
       Labor Code Sections which expressly refer to
       “responsible persons”
• NOT insurance – Wage and hour claims are
  excluded from most insurance policies, including
            Loss Prevention Strategies

• Class action risks
      Employers whose workforce is primarily comprised of non-
       exempt employees
      Employers whose work is performed primarily by
       “independent contractors”
      Multi-state employers
      Multi-city employers
        • Certain cities impose wage and hour requirements
               Living wage
      Employers with centralized human resource departments
        • No on-site management
                Loss Prevention Strategies

•   Litigation Economics
        Wage and hour - the perfect class action
            • Claimants
                  Past employees
                  Present employees
            • Class easy to recruit
            • Easier to certify
        Violations easy to prove
            • Facts rarely disputed
                  Time cards ultimate proof
            • No science needed
                  Accountants only
            • Damages easier to prove
                  Interest and penalties act as multiplier
            • Recovery small for individual claimants, but huge for attorneys
           Loss Prevention Strategies

• Procedures
    Each locality must have its own payroll procedures
    An attorney should review the wage and hour
     procedures for each locality
• Job Descriptions
    Every job must be classified either as exempt or non-
      • A legal opinion should be obtained for any
        questionable exempt classification
    Employees should acknowledge their job description /
       Loss Prevention Strategies

• Employee Handbook
     Should define the different
     Should direct employees where they can
      discover their classification
     Should provide and outlet for questions
      and disputes
     Should incorporate retaliation prevention
         Loss Prevention Strategies

• On-Site Controls
      Employers should have management
       personnel trained on wage and hour matters
       at every location
      Employers should audit each location’s
       payroll records every two years
      Every claim made to the Department of
       Labor or a state labor department should be
       investigated quickly and professionally
         Loss Prevention Strategies

• Training
      Certain management personnel in each locality
       should be trained on the federal, state and local
       labor laws
        • Human resources personnel an obvious
      All managers should be made aware of what
       they can and cannot do as to non-exempt
       employees’ time
        • Special attention to breaks, clocking in, and
          working overtime
           Loss Prevention Strategies

• Payroll services
      Closely review their contractual obligations
        • What they guarantee and do not guarantee
• Educate your insured/clients
      Review wage and hour opinions
      Monitor decisions
      Work closely with wage and hour specialists
      Many carriers offer wage and hour education as part
       of their loss prevention platforms
      Hot lines to attorneys with wage and hour questions
     2006 International

Wage & Hour - How Much Can it Cost You?

   Thank you for attending!

        Chicago, IL ~ November 8 - 10, 2006

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