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How to Protect Your Company From Wage and Hour Lawsuits
On April 12 we finally received the long-awaited ruling in Brinker Restaurant Corp. v. Super. Ct.  The decision is terrific for employers, as we will outline below.  But meal and rest periods are not the only laws that can expose your Company to liability.  This Newsletter will outline some changes you can make today to protect your Company. 

In this Newsletter you will find:
 
 
 
 
     •     How Can We Help?
 
If you would like to review the last months' newsletters with more tips and tools for creating clear expectations, click here.  In our next issue, we will take a break from Setting Expectations, and will provide ideas you can implement immediately to protect your company and increase productivity through your Sustainable Performance Management systems.
 
 
Lessons from Brinker: What Are Your Obligations for Providing and Enforcing Rest and Meal Periods? 
California employers have waited a long time for the decision in Brinker Restaurant Corp. v. Super. Ct., and employers should be pleased with the result.  Here is a reminder of the existing law governing rest and meal periods, and a summary of the Brinker decision and its lessons.
 
California law requires that no employer "shall require" a non-exempt employee to work during any meal or rest period.  Also according to the law, employers "shall authorize and permit" rest and meal periods as follows:
 
     (1) employees who work more than 3.5 hours are entitled to take a ten-minute paid rest period for every four hour work period or "major fraction thereof" that, as practicable, should be taken in the middle of each four hour work period.
 
     (2) employees who work more than five hours per day are entitled to a thirty (30) minute unpaid meal period, to commence within the first five hours of work (and by the end of the tenth hour of work for employees working in excess of 10 hours).  If an employee works fewer than six hours per day, the break may be waived voluntarily by the employee, as memorialized in a written waiver executed by the employer.  Employees who work more than 10 hours per day are entitled to a second 30-minute meal break, but this break may be waived by mutual consent if the employee works fewer than 12 hours per day and the employee has not waived the first meal period.

The failure to provide appropriate rest periods will result in a penalty equal to one hour of straight time pay, as will the failure to provide an appropriate meal period. 
 
The question for the Brinker court was whether, and to what extent, a Company is required to "police" its rest and meal periods.  The Brinker employees argued that an employer must "ensure that work stops" for the required 30 minutes.  The Brinker court disagreed, holding that an employer must relieve an employee of all duty for a designated meal period but does not need to ensure that the employee does no work. The employer still is prohibited from exerting coercion against the taking of breaks, from creating incentives to forego legally required breaks, or from otherwise encouraging the skipping of legally protected breaks.
 
Stated differently, the employer needs to provide a compliant rest and meal period to non-exempt employees; it may not interfere with or thwart the employee's ability to take that rest or meal period; and if the employee, of his or her own volition, elects not to take the meal period, the employer is not subject to the penalty. 
 
What should you do in response to Brinker? 
  • Confirm that your employee handbook has a policy that accurately describes an employee's eligibility for rest and meal periods, and that the Company has posted the relevant wage order and FLSA poster;
  • Ensure that your practices afford the employee a meaningful opportunity to take rest and meal periods;
  • Require that employees confirm that their time cards accurately reflect their hours worked, and that they were afforded an opportunity to take rest and meal periods and that any failure to do so was voluntary on their part.
 
 
Ten Steps You Can Take Today to Reduce Your Risk of Wage and Hour Litigation
The failure to track time correctly and pay employees appropriately can expose your Company to significant risk.  In addition to the obligation to pay the unpaid wages, the Company could be exposed to statutory penalties, including waiting time penalties for failure to pay final wages, penalties under the Private Attorney General Act, and costs and fees incurred by the unhappy employee(s).  Here are some changes you can make today.

1.      Audit Your Job Classifications to Determine Whether Your "Exempt" Employees are Qualified for the Exemption.  Employees who are misclassified as exempt from overtime and rest/meal periods are entitled to unpaid wages, penalties for the company's failure to pay the wages, and attorneys' fees.  In order to satisfy either the Administrative, Executive or Professional exemption, and as a result be exempt from overtime obligations and rest and meal period rights, the employee must satisfy both a salary and duties test, and must be paid in accordance with the exemption rules.  A summary of the salary and duties test can be found here.  The threshold requirements under California law for meeting one of the exemptions are significant, and where the duties satisfy the exemption, they must be performed more than 51% of the time.  Further, even if the company believes the position is an exempt one, the ultimate question will be whether the employee actually is performing exempt duties 51% or more of the time.  Employers should conduct frequent audits of classifications both to be certain that the position meets the legal requirements and to confirm that the employee is performing as described in the job description. 
 
2.     Make Sure You are Paying Your Exempt Employees Correctly.  Remember, you may reduce paid time off (vacation and sick leave) by partial day absences, but once that time is exhausted, you may not reduce an exempt employee's pay except where (a) the employee absents himself for personal reasons for a full day or (b) the employee absents himself for personal illness and you have a sick leave policy.  Generally, if an exempt employee works any part of a workweek (other than as described above, or in the event of mid-week termination), he is entitled to a full week of pay. 
 
3.     Are You Correctly Paying Your Salespeople?  Qualified outside salespeople are exempt from minimum wage and overtime provisions.  In order to qualify for the exemption in California they must customarily and regularly work more than half the time away from the employer's place of business (or their home office if they are a remote worker) selling tangible or intangible items or obtaining orders or contracts for products, services or use of facilities.  The commission they are paid generally must be a percent of sales.  Certain industries may pay inside salespeople on a commission basis (professional or retail industries) if the worker's earnings exceed 1.5 times minimum wage and more than half of their compensation is commission-based.  Remember, inside sales people are not exempt from rest and meal period requirements. Be careful here with guaranteed draws: these earnings may be considered "salary," making the employee ineligible for the exemption. 
 
4.     Confirm that Your Overtime Practices are Accurate and Enforced, and There is no "Off the Clock" Work.  Non-exempt employees are entitled to be paid time and one-half their regular rate of pay for all hours worked in excess of eight (8) hours in one workday or forty (40) hours in one workweek.  Hours worked in excess of twelve (12) in a workday and in excess of eight (8) hours on the seventh (7th) consecutive workday must be paid at double the employee's regular rate of pay.  Be certain your managers and employees understand that if they work the time, it counts as hours worked, even if it is before or after they clock in.  If you don't want to pay for it, prohibit time worked "off the clock!"
 
5.     Review Your Independent Contractor Relationships.  California law presumes that a worker is an employee.  The burden of proving otherwise is on the employer.  It is not enough that there is an independent contractor agreement, or that the employee is paid from accounts payable and issued an IRS Form 1099.  The independent contractor, among other factors, needs to provide a service that is not otherwise performed within the Company and needs to bear the risks and benefits of a business owner.  The Company may not exercise control over the method or means by which the work is performed as such control is the quickest way to destroy an otherwise valid independent contractor classification. 
 
6.    Audit Your Itemized Pay Statements.  Nine categories of information must be reflected in all itemized pay statements:      (1) gross wages earned, (2) total hours worked by the employee, except for any employees who are exempt from overtime laws, regulations, and the applicable wage orders, (3) the number of piece-rate units earned and any applicable piece rate if the employee is paid on a piece-rate basis, (4) all deductions, (5) net wages earned, (6) the inclusive dates of the period for which the employee is paid, (7) the name of the employee and the last four digits of his or her social security number or an employee identification number other than a social security number, (8) the name and address of the legal entity that is the employer, and   (9) all applicable hourly rates in effect during the pay period and the corresponding number of hours worked at each hourly rate by the employee.  Employers who fail to include all of the requisite information may be subject to penalties of $50 for the first violation and $100 for each violation thereafter, up to a maximum of $4000 or actual damages, whichever is greater.  Remember: recent law added an obligation that you provide similar information (plus commission plans and workers compensation carrier contact information) to new employees.  
 
7.    Include Employee Confirmations on Time Cards.  On each time card, the employee should be asked to review the time recorded and confirm its accuracy.  As outlined above, any missed rest or meal periods should be confirmed to be voluntary. 

8.    Review Your Mandatory Postings.  Failure to maintain required postings can expose an employer to significant penalties.  For example, failure to maintain the appropriate workers' compensation postings (including something as simple as the current plan year) can expose employers to penalties up to $7,000 for each violation.  All employers should prominently display postings such as (and not limited to) (a) the applicable wage order(s), (b) minimum wage posting, (c) payday notice, (d) Safety and Health Protection on the Job, (e) Emergency telephone numbers, (f) Notice to employees – injuries caused by work, (g) Notice of workers' compensation carrier and coverage, (h) whistleblower protections, and (i) No smoking signage.
 
9.     Implement Methods for Recouping Overpayments and Making Employees Whole.  When overpayments are made, those overpayments may be recouped through deductions in subsequently issued paychecks but only if (1) the employee provides a voluntary written authorization for said deduction, and (2) the deduction does not reduce the amount an employee receives to an amount below the requisite minimum wage.  Employers should review their methods for recovering overpayments to ensure that those methods are lawful.  If you discover that you have underpaid an employee, steps should be taken to identify the amount of the underpayment, and the underpayment should be remedied.  If the underpayment is widespread, consult an attorney to understand the implications and develop a strategy for resolving the issue.  
 
10.      Consider Obtaining Acknowledgements from Departing Employees.  While the Labor Code generally prohibits an employer from obtaining a release of wage claims, an acknowledgement that an employee has been paid all wages and outstanding sums owed can be an arrow in an employer's quiver against subsequent claims of unpaid wages.  The acknowledgement, however, cannot be requested (1) as a condition for receipt of payment, and (2) if the employer knows that the information contained in the acknowledgment is false.  This acknowledgment can be obtained as part of the exit interview process and should be maintained in the individual's personnel file.  
 

Your Turn: Take the Sustainable Workplace Quiz
Penny and the Lunch
 
 
Penny is a hardworking employee.  A portion of her salary is commission-based, and she consistently works through lunch because she wants to earn as much commission as possible.  She earns the highest commission of any employee and achieves the highest sales. 

What should her supervisor do, if anything, about Penny skipping rest and meal periods?
 
Penny's supervisor adores her.  Penny consistently receives the highest bonus in the department.  The supervisor regularly holds her up as a model to the other employees.   When they leave for lunch, he looks over his glasses at them with a scowl. From time to time, the supervisor will ask employees if they are willing (entirely optional, he says) to work through lunch because the department is so busy. 
 
Employees complain to Human Resources that they feel that they need to work through lunch. 
 
How should HR respond to these concerns?
 
To see our thoughts and recommendations, click here
 

How Can We Help?
A Company's innocence in misclassification of its employees, its inaccurate tracking of employee time worked, and failure to pay employees appropriately can create the most expensive risk of litigation.  And once the errors are made, the consequences are difficult to avoid.  Identifying and correcting the issues early makes a big difference.

We are happy to help:
 
     -     Have You Correctly Classified Your Workers?  Help us understand the duties and pay practices for your "exempt" employees and independent contractors, and we can determine whether you have made the best choices. 

      -     Are your policies in compliance with the law and best practices?  We are happy to work with you to review, draft and implement policies and practices that establish clear and shared expectations on pay and hours worked. 

     -     Are your payroll practices in compliance with your well-crafted policies?  Often your policies are perfect, and the implementation of those policies, even if well meaning, may be creating a risk.  An audit can identify areas of risk and areas for improvement.   

     -     Have you educated your managers?  As always, educating your managers on your policies and the key laws will make the difference between efficient and effective pay practices and the risk of liability.  We can help you train your managers on what they need to know about wage and hour laws. 

Give us a call at 619-906-2400 or send us an e-mail.  We are happy to help.   
 
Keep an eye out for next month's newsletter, where we will begin to outline how effectively managing performance can be the key to protecting your workplace from liability and increasing productivity and loyalty.  Yes, we are talking about Sustainable Performance Management Systems. 
 
If you would like to review our prior newsletters with tips and tools for Creating the Sustainable Workplace, click here.
 

Schor Vogelzang LLP

Partnering to create your great workplace!

600 B Street, Suite 2200, San Diego, CA 92101
P: 619.906.2400 F: 619.906.2401

 

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