Be Careful, You Can Be Individually Found To Be An Employer In Your Private Lives!

May 29, 2010

I receive calls from time to time from clients who have “employed” individuals to work around their home. Be it for domestic services, home improvement related work, or gardening, when you hire one of these individuals (including day workers) you are in fact an employer under the definition of the labor code and, more recently, by a holding just rendered by the California Supreme Court.

In reaching it’s the decision, the California Supreme Court held: “To employ, then, under the IWC’s (Industrial Commission Welfare Order) definition, has three alternative definitions. It means: (a) to exercise control over the wages, hours or working conditions, or (b) to suffer or permit to work or (c) to engage, thereby creating a common law employment relationship.”  In clarifying section (b) above you merely have the power to stop or prevent a person from working. To clarify (c) “To engage” someone to work means that YOU are the actual entity that hired the “employee” to do the work.

Think about it. You hire an “individual” at your home to assist with some project.  You negotiate the amount the person will be paid, the time you want them to show up (most homeowners want to be home at the time to direct the work etc.) and overall you control the working conditions. You have just become an employer within the definition.

You are now required to pay no less than minimum wage, and you must provide breaks and lunch time (some workers even negotiate that you provide lunch). But wait, you are also required to have workers compensation because you are an employer ($1,000 fine per individual and $1,500 effective January 1, 2011) and you are required to have them provide documentation that they can legally work in the U.S. If you fail to have an I-9 on file you can be fined $10,000.

I have been to the Workers Compensation Appeals Board and heard horror stories about homeowners who were being sued because their “day worker” had been injured in the performance of their duties. I know we hire these individuals because we want the “discount” as opposed to the hirer fees charged by a company bidding on the same project but there are other considerations that you must think about. Cheaper may not be cheaper in the long run. Be careful.

U.S. Department of Labor To Begin Enforcing Federal Wage-and-Hour Laws

May 24, 2010

Well, for those of you that have been “keeping up” I have been preaching about the necessity of HR audits. Now it’s coming from the feds. The U.S. Department of Labor (DOL) recently announced that it will change dramatically how it regulates employers’ compliance with certain federal  laws. Within the next year, it will issue regulations requiring employers to take steps to ensure compliance with federal wage & hour, safety, and anti-discrimination laws. Their strategy is called, “Plan, Prevent, Protect.”

Let me explain what they mean. The DOL will focus on three components. The “Plan” component means that employers will be required to create plans and processes that assess and demonstrate compliance with federal laws. The DOL is considering requiring employers to work with employees in the development of these plans and, at the very least, employers will be obligated to distribute the plans to employees so that they can fully understand the plans and monitor their employers’ compliance. The “Prevent” component means that employers will be required to implement the  plans and demonstrate to employees that the plans are actually in use. The “Protect” component means that employers will be required to designate certain workers to be charged with implementing plans and evaluating their effectiveness.

Employers need to be prepared. I would recommend that employers begin by conducting workplace audits of company wage & hour policies and practices, specifically with regard to the classification of workers, audit your safety policies and practices (some of you have safety programs in place but may not be in compliance (IIPP)), and review all of your anti-discrimination policies and practices including harassment, discrimination, and retaliation (because California requires training (AB1825) many of you are probably already in compliance). The bigger issues will be federal wage & hour and safety laws compliance.

I will be creating an outline of the required plan and procedures when I have more information. In addition, I will be creating a seminar for managers on federal wage & hour compliance and work with some of our partner companies for the safety laws compliance portion of the plan. The times are changing. Let’s be proactive to prevent having to be reactive.

Employer Forced To Accept Transgendered Staff

May 20, 2010

The times are changing and so are the laws that protect employees. One employer, American Eagle Outfitters, allegedly had a policy in their employee handbook which forced its employees to dress in gender specific clothing and banned cross-dressing. This policy did not sit well with the transgendered community and with the help of Attorney General Andrew Cuomo (New York) the employer was forced to change their policy which was deemed to be discriminatory.

Our clients that have an outreach to New York need to review their dress code policy to ensure compliance. California employers have been required to have neutral based dress code policies for years. More specifically, if a person dresses in a manner consistent with the gender that they self-identify with, as long as they are within the dress code policy for that gender, they will be protected. This issue normally arises when an individual is having gender reassignment (which could take up to a year).

Let’s remember that managers and supervisors have to support the work environment and not engage in, or permit behavior that is contrary to any state or federal guideline.

Social Media-Keeping Current And Former Employees Quiet

May 17, 2010

There is no secret to the fact that technology is changing everyday and with these changes new issues are impacting the work environment. Disgruntled current and former employees can, and do, lash out against supervisors, managers, co-workers and the business itself. Some even do it from their company owned computer. Employers need to be proactive with having a policy that denies employees the use of the company computer for personal reasons and another policy prohibiting the use of personal handheld devices that have access to the internet. There are so many “rant sites” where employees can go to air their grievances in a public forum (some employees join some of these sites together and after work blast their supervisor, co-workers, and the services offered by the business). 

Employers need to have policies in place expressly prohibiting any such conduct on or off the clock and any violation will be grounds for disciplinary action up to and including termination. You can also give employees guidelines to operate within to avoid potential privacy issues or violations of the Labor Code (as an example, if the policy is too strict it could prohibit employees from discussing salaries which is a clear violation). In other words, you don’t intend to prohibit use, but there are rules that they have to abide by.

Controlling former employees is a lot harder and has to be addressed at the time of termination. Severance packages is an option if you know the employee is the type of individual that may lash out on the internet.

Owing “Finder’s Fees” To Salespersons-Special Bulletin

May 13, 2010

A recent decision by the California Court of Appeals held that a Porsche Dealer may owe a finder’s fee to an unlicensed salesperson who is in the business of finding, buying, and then selling again used Porsches. The dealer argued that the saleperson lacked a dealer’s license and a salesperson’s license and therefore, was barred from recovering any finder’s fee (11 vehicles were at issue). The salesperson argued that he was a salesperson and that he should be able to recover against the dealer for breach of contract, unjust enrichment, and fraud. The lower court found on behalf of the dealer but the higher court reversed that decision finding that the salesperson was “in substance a salesperson” for the dealer. As for the fact that the salesperson also lacked a salesperson’s license, the court held that the licensing requirement exists to protect the public from unscrupulous dealers and not dealers from their own salespeople.

Take a hard look at your policies. This may open up a can of worms.

California Supreme Court Upholds Forfeiture Provision In Incentive Compensation Plan

May 11, 2010

There are a significant number of our clients that have quarterly and annual bonus programs (such as Christmas Bonuses) that require an employee to be employed at the end of the quarter or the end of the year to qualify for the bonus. The California Supreme Court has issued a decision in Schachter v. Citigroup, Inc., upholding the legality of an incentive compensation plan provision providing for forfeiture upon an employee’s resignation or termination for cause.  The plan at issue allowed employees to elect to receive shares of restricted stock at a reduced price in lieu of a portion of their annual compensation.  Title to the shares vested two years after the purchase date.  However, the plan provided that if the employee voluntarily resigned or was terminated for cause prior to the two-year vesting date, the employee forfeited his or her stock as well as the portion of annual income designated by the employee to be paid as shares of stock.  (If an employee was involuntarily terminated without cause prior to vesting, the employee still forfeited the stock but was paid for the percentage of annual income the employee had directed be used to purchase stock.)

The Court also rejected Schachter’s argument that at least a portion of his incentive compensation should have vested on a pro rata basis, much like vacation wages.  The Court explained that unlike vacation, which is compensation for past services, an incentive compensation plan is inducement for continuing future service.  As a result, the Court held that rules prohibiting forfeiture of accrued vacation do not apply to incentive compensation plans.

Although the Schachter case is an employer-friendly decision that allows employers more control and flexibility in structuring incentive compensation plan, employers should note that the California Supreme Court placed some emphasis on the fact that Schachter had voluntarily resigned and, therefore, it was Schachter’s own actions that caused him to lose his contingent incentive compensation.  Although the Court did not say that a forfeiture provision tied to involuntary terminations would per se violate California law, employers should be mindful that forfeitures in the case of involuntary terminations frequently give rise to a claim that the employer terminated the employee as a pretext to avoid payment of the incentive compensation.  Therefore, particular care should be taken in drafting forfeiture provisions tied to involuntary terminations.

The case noted above has favorable overtones but please be extremely careful when it comes to such programs. As a reminder, employers can also structure commission plans that state an employee does not receive any commissions once they leave the company. It needs to be clearly stated, and signed off by the employee.  Remember, we are still doing business in California. ANY such commission plans should be reviewed prior to enactment.


Do Volunteers or Interns Have To Be Paid? New Guidelines!

May 3, 2010

We have received a number of calls lately on the issue of whether or not an employer has to pay “volunteers” or “interns.” We have cautioned against this practice based upon a case-by-case analysis of the facts. Volunteers, who may on occasion, work on a fund raising event do not have to be paid, but if they work consistently in the office they probably will have to be compensated.

There are many California companies who participate in unpaid internship programs where student workers obtain vocational training, and oftentimes school credit, while working without pay.  The issue often arises as to whether these interns have to be treated as employees subject to California and/or federal wage and hour laws.  On April 7, 2010, the California Department of Labor Standards Enforcement (“DLSE”) issued an Opinion Letter on this subject. 

The Opinion Letter highlights the fact that there is no state or federal statute or regulation which expressly exempts persons participating in an internship program from wage and hour laws. However, both state and federal case law has recognized that such an “internship” exemption exists.  According to both state and federal case law, a case-by-case factual inquiry must be made in order to determine if the exemption properly applies.  The U.S. Department of Labor has articulated the following six criteria, derived from the U.S. Supreme Court’s ruling in Walling v. Portland Co., 330 U.S. 148 (1947) to apply in making case-by-case determinations:

(1) The training, even though it includes actual operation of the employer’s facilities, is similar to that which would be given in a vocational school;

(2) The training is for the benefit of the trainees or students;

(3) The trainees or students do not displace regular employees, but work under their close observation;

(4) The employer derives no immediate advantage from the activities of trainees or students, and on occasion the employer’s operations may be actually impeded;

(5) The trainees or students are not necessarily entitled to a job at the conclusion of the training period; and

(6) The employer and the trainees or students understand that the trainees or students are not entitled to wages for the time spent in training.

Prior to this new April 7. 2010 Opinion Letter, the DLSE had used the above multi-factor test, as well as other multi-factor tests (including an 11-factor test and an alternate six-factor test).  The Opinion Letter now settles the internal controversy within the DLSE as to which test to use. The April 7, 2010 Opinion Letter concludes that the above six-factor test used by the U.S. Department of Labor is the proper test that should be used by the DLSE in interpreting applicability of California state wage-and-hour laws to interns.  The DLSE Opinion Letter is here

Interestingly, the United States Department of Labor has also issued a new fact sheet on unpaid internships, providing further guidance on this issue for employers.  The DOL fact sheet is here.