2017 Cal-Peculiarities

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Seyfarth Synopsis: The natural inclination is to ignore attempts to dredge up claims of harassment that happened long ago. But no harassment claim is too old to investigate. Having strong anti-harassment policies and investigation procedures, along with a good work culture, can help employers avoid getting caught in the cross-fire of the “me-too” harassment dialogue.

The #MeToo movement has enveloped America. Women in every station of life—celebrities and ordinary folk alike—have broken their silence to report sexual misconduct. Often the allegations address conduct that occurred years ago, beyond any legal limitations period.

So what is an employer to do? Suppose an employee or former employee comes forward to say, “I was harassed 10 years ago by my supervisor and I want you to investigate!” What do you do? Do you have a duty to investigate? If so, how do you do so? And can you be liable for claims that invoke events occurring years ago?

The Legal Landscape

Someone suing for harassment unlawful under California law must show unwelcome verbal or physical conduct that was severe or pervasive enough to alter working conditions and create an abusive working environment for a reasonable person. Harassment plaintiffs suing under the California FEHA must first exhaust administrative remedies. That involves filing an administrative complaint within one year of the unlawful conduct and obtaining a right-to-sue letter. Once the letter issues, the plaintiff has one year to file a civil lawsuit.

There are three exceptions to the one-year rule: (1) someone who learns of the unlawful practice after the year may get a 90-day extension; (2) someone subjected to discriminatory violence or threat of violence (see Civil Code section 51.7) may get an extension of up to three years; and (3) someone victimized by unlawful practice while still a child can get an extension of up to one year after turning 18 years old.

How might the first exception come up, you ask? Well, say two employees make sexually charged statements via email about the complainant. She finds out about the emails a year or so later. Perturbed and believing that the emails have changed the terms and conditions of employment, she resigns and files an administrative complaint with the DFEH. While her claim would fall outside of the statutory period because the emails occurred than a year ago, her claim arguably might be subject to the 90-day exception because she learned of the “harassing conduct” when she learned of the emails.

Stale events can also be actionable under the “continuing violation” doctrine, if one part of the violation occurred within the limitations period. A violation can be continuing if the unlawful incidents that occurred before and within the limitations period were (1) sufficiently similar in kind, (2) occurred with reasonable frequency, and (3) did not obtain a degree of permanence. In other words, claims based on stale events can be pursued if they address timely events of a similar nature. Reasonable frequency refers to similar conduct that was not isolated, and permanency refers to whether the plaintiff was on notice that further efforts to end the unlawful conduct would be in vain.

Your Harassment Policy And The Legal and Non-Legal Reasons To Enforce It

A company’s interest in preventing harassment is moral and organizational as well as legal. Preventing harassment and fostering civility and respect in the workplace are the right things to do. And employers with strong anti-harassment policies and periodic anti-harassment training can create a culture of compliance, reporting, and remediation that will encourage employees to seek redress with the company instead of through social media or litigation.

Employer policies generally prohibit discrimination and harassment in the workplace and require, or at encourage, employees to report promptly the harassment they experience or witness, so that the incidents can be properly investigated. Policies usually do not impose deadlines on when an employee must report harassment or discrimination.

What Do You Do With A Complaint?

(1) Always try to investigate

So if a stale claim lands on your desk, what do you do? The short answer is always investigate—no claim is too old. Policies usually both encourage reports and do not impose time limits on reports, so live by your policy. Doing so enforces the policy’s integrity. Employees are more likely to follow policies if their employer holds itself to them.

A thorough investigation will lead to an employer’s best decision and will in any event support the reasonableness of its decision as part of any legal defense. And failing to conduct an adequate investigation, while not itself actionable, can undermine the employer’s legal defense. Failing to investigate a complaint—even a stale complaint—can also create exposure if the accused engages in further harassment against either the complainant or someone else the accused interacts with.

(2) Prompt and thorough investigations are key

Stale claims bring special challenges. Witnesses may no longer work with the company, and documentary evidence the complainant may once have had may no longer exist.

Nevertheless, like any investigation, the investigation of a stale complaint should be reasonably prompt and thorough. The complainant should be interviewed and the allegations impartially investigated. If the accused is no longer an employee, the employer should assure the complainant that the alleged conduct is not tolerated and should point to its policies for support.

After every investigation, an employer should follow up with the complainant to report the findings of the investigation and any remediation taken. The employer should ensure that any misconduct has ceased and that the complainant feels safe. The employer should also encourage the complainant to report any future incident of harassment and affirm that the complainant will suffer no retaliation for coming forward. And the employer should then revisit the situation with the complainant, after some reasonable interval, to ensure that there is no further complaint.

If you are interested in a further discussion of any step in the above process, from drafting policies to conducting trainings or investigations, your Seyfarth attorney is ready to advise and assist.

Seyfarth Synopsis: The ordinary headaches of responding to unemployment claims with the EDD do not have to bog down employers in 2018. Here, we provide recommendations for managers to consider before the ball drops in Times Square this New Year.

’Tis the season to be jolly, sing holiday songs with family by the fire, and aspire to reach new heights in the coming year. Employers, consider making it one of your New Year’s resolutions to reevaluate your approach to unemployment benefits claims. Certainly, more time and fewer headaches are things we can hope for in 2018.

Many of us are well-acquainted with the frustrations of defending unemployment claims made by employees recently fired for misconduct. Suppose an employee with a history of warnings for rude comments makes one final zinger on a conference call, forcing your hand to fire him. The resulting distraction and lost morale are bad enough, but next he hales your business into a claims process with the California Employment Development Department (EDD) for unemployment benefits. You spend the next few months answering questions from EDD agents and submitting detailed proof of the employee’s bad behavior. A manager and other witnesses take the day off to testify at the hearing. After all this, the employee is awarded benefits anyway and, worse, he now sues you for wrongful termination. This nightmare before Christmas is enough to make any employer a scrooge!

Our holiday gift to employers is a set of best practices to help you navigate the EDD’s blizzardy claims process, and to minimize any potential problems should a Grinch-y employee sue you later. We hope our recommendations result in many silent nights in the year to come.

Determine If The Employee Was Bad Enough For the EDD’s Naughty List

Employers do not need a shepherd or a shooting star to know that employment in California is at will. So long as the decision is not discriminatory or unlawful retaliation, managers may terminate employment because of misconduct, poor performance, for violations of company policy (even on first-time infractions), or, ultimately, for no reason at all.

But the EDD will deny a claim for unemployment benefits only if it finds a much narrower type of serious misconduct. The broken rule or policy at issue must be important to the business. If a misdeed did not harm the company, then the discharged employee will likely win an award of benefits. Also, a single, isolated mistake usually will not preclude such an award. Poor job performance—unless highly egregious and persisting after multiple warnings and a clear threat of termination—will probably not suffice either. What the employer needs to prove are acts of serious misconduct, such as embezzlement, workplace violence, or harassment, and EDD will demand real proof, such as documents and convincing testimony.

Remember, the EDD is in the business of awarding benefits, so expect that in most cases that is just what the EDD will do. That is, most terminations will not disqualify a former employee from an award of unemployment benefits. Employers should carefully evaluate the reason for the discharge, and the supporting evidence, before trudging down the icy path of litigating an unemployment claim. And if you do decide to challenge a claim, make sure to bring more than a Red Ryder BB gun to the hearing; the EDD will expect hard evidence and credible witnesses before it denies benefits.

Just As Santa Does With His List, Check Your Facts At Least Twice

Most disputed unemployment claims are contentious. No holiday carol extols the joy of getting fired, and that is for good reason. Opposing a former employee’s benefit claim is often like throwing gasoline on a fire, and lawsuits for wrongful termination are usually not too far away.

The EDD’s claims process is complex, so it is not uncommon for claimants to lawyer-up. None of the parties’ communications with the EDD are privileged, however; interviews, position statements, and the like are all discoverable, as are the documents submitted and the testimony given at the hearing. In a later lawsuit, a plaintiff’s lawyer can subpoena the EDD’s entire file, which frequently includes an audio recording of the hearing, and search for inconsistencies or admissions to use against an unsuspecting employer in litigation. Because companies often give EDD claims a low priority, statements made to the EDD often are not scrutinized by counsel or senior staff. Employers should carefully vet the facts of a termination before they are presented to the EDD. Otherwise, bad evidence, like the ghost of Jacob Marley, may just come back to haunt you.

Consult Your Trusted Magi On High Risk Terminations

In some cases, the likelihood of litigation over a termination is clear before or soon after the termination decision. A high-risk termination may be preceded by the threat of a lawsuit by an employee’s newly hired lawyer during the company’s investigation for misconduct. It may not be wise, depending on the circumstances and the employer’s ultimate goal, to oppose the employee’s unemployment claim. Or, conversely, it may be strategically sound to educate the employee’s attorney on the Gremlins hiding in the case from the outset.

Workplace Solutions: When litigation is on the horizon, we recommend that employers consult with their trusted counsel on these strategic decisions as early as possible. Our attorneys are ready to help guide employers through these dynamics, whether it be this holiday season or in the year to come.

 

Seyfarth Synopsis: In the first case of its kind under the California Fair Pay Act, a court dismissed a pay equity class claim against Google, holding that alleging wage discrimination for “all women” does not plead enough information to sustain a complaint.

You have learned, in following our updates on California’s Fair Pay Act (2015 passage, 2016 update 1 to include more than gender, and update 2, DLSE FAQ updates, and the AB1209 Gender Pay Gap Transparency Act update), that the FPA’s requirements are hardly transparent. Well, last week, in the first ruling of its kind, a California court has provided a little clarity.

As reported here by our Pay Equity Group, a court has dismissed a sweeping class action complaint against Google, seeking to represent “all women employed by Google in California” on claims of gender-based wage discrimination. The court held that the plaintiffs had not adequately alleged an ascertainable class, meaning there was no way to tell who had claims and who didn’t. Because there was no common policy or practice affecting all women at Google, the court found that the plaintiff could not show commonality or typicality with the group she seeks to represent.

Workplace Solutions: While we have a long way to go getting clarity on what the FPA requires, this court decision was a welcome first start. Please reach out to our cutting-edge Pay Equity Group with your questions as you continue to navigate these thorny issues.

Seyfarth synopsis: Companies contemplating a mass layoff must comply with the federal Worker Adjustment and Retraining Notification Act. In California, alas, companies must also consider the even more stringent requirements of California’s own WARN act. That is the harsh lesson recently imparted by the California Court of Appeal in Boilermakers v. NASSCO Holdings Inc.  

As just reported in our management alert, a California shipyard sustained liability when it failed to notify 90 employees of a four- to five-week furlough occasioned by a lull in their production work. Under the federal WARN act, no notice was required, because fed-WARN requires notice only for a “plant closing” or a “mass layoff,” and the latter refers only to an “employment loss,” which is either a termination, a layoff exceeding six months, or a 50% reduction in work hours during six consecutive months.

Because the short furlough here did not trigger any of those conditions, fed-WARN did not apply.

But California is different. As NASSCO Holdings explains, California, as is its wont, has decided that federal worker protections are inadequate, and that California knows better: “the entire thrust of the legislative effort in enacting the California WARN Act was to provide greater protection to California workers than was afforded under the federal law.” Cal-WARN, like fed-WARN, applies to “mass layoffs,” but defines the term more broadly than fed-WARN does. Under Cal-WARN, a “mass layoff” includes a layoff of at least 50 employees during a 30-day period, with a “layoff” being any “separation” from a position for lack of funds or work, and with there being no requirement of a minimum duration (such as the six-month minimum duration stated in fed-WARN). So Cal-WARN can cover a short-term layoff that fed-WARN would not cover.

The employer in NASSCO Holdings pointed to absurdities resulting from a broad reading of Cal-WARN, such as Cal-WARN applying to long holiday weekends and totally unforeseen events. NASSCO Holdings responds that, under Cal-WARN, “California employers, not California employees, should bear the risk of surprise resulting from an unexpected layoff,” and that employers who do not like that result can always take their concerns to the California Legislature. (Good luck with that.)

NASSCO Holdings also sounds a warning that Cal-WARN’s extension to short-term layoffs is not its only Cal-peculiarity. Cal-WARN exceeds the reach of fed-WARN in other respects as well. For example, Cal-WARN, unlike fed-WARN,

  • provides employers no exemption for layoffs resulting from “unforeseeable events,”
  • permits an award of attorney fees only for prevailing plaintiffs (not prevailing defendants),
  • includes part-time employees as well as full-time employees in calculating whether enough employees have been affected to constitute a mass layoff,
  • requires direct notice to employees (not just to employee representatives), and
  • requires notice to more local officials and agencies.

This Cal-WARN saga is thus an apt exemplar of the more general peril that unsuspecting national employers—duly following national labor law—can encounter when they do business in the Golden State. Be WARNed: California is peculiar.

California Workplace Solution:  Laying off at least 50 employees can trigger a Cal-WARN concern even if the layoff, or furlough, will be short-term. So you may have to give employees at least 60 days’ notice of that event. Some administrative authority suggests that very short furloughs—lasting two weeks, or some shorter period—do not trigger Labor Code termination obligations, which arguably could mean that they escape the grasp of Cal-WARN. That authority is consistent with Cal-WARN language that creates liability only to employees who have “lost … employment,” and with the fact that a very short-term furlough is not a meaningful loss of employment. But the facts of each particular situation will matter. Our specialists at Seyfarth are here to WARN you of the risks and advise you on how best to handle your own situation.

Edited by David Kadue.

Seyfarth Synopsis: In June 2017, the San Francisco Board of Supervisors passed an ordinance requiring employers to provide a private “lactation location” where new mothers can pump their milk as well as a “lactation break” during the work day, in addition to other amenities. The ordinance is effective January 1, 2018 and is more expansive than current state and federal law requiring employers to make reasonable efforts to provide lactation breaks throughout the workday. In the wake of its passage and the approaching effective date, the City’s Office of Labor Standards Enforcement and Department of Public Health are issuing administrative guidance for employers.

San Francisco’s Lactation Ordinance Is More Comprehensive Than State and Federal Law

As we wrote a few months ago, San Francisco’s Lactation in the Workplace Ordinance goes into effect January 1, 2018. Virtually all San Francisco employers are covered; there is no minimum employee threshold that may exempt smaller employers from coverage. This latest ordinance is another example of the City’s ongoing effort to enact employment regulations with the goal of either addressing a perceived need in the absence of state or federal law (such as the City’s 2007 paid sick leave ordinance that went into effect over eight years before the California version) or, in the case of the lactation ordinance, exceed the requirements of existing law.

The ordinance calls for a private “lactation location” that must meet several requirements. The lactation location must not be a bathroom and must be (1) shielded from view, (2) free from intrusion by other employees or the public, (3) available as needed, (4) “in close proximity to employees’ work area,” and (5) safe, clean, and free of toxic hazardous materials. The employer also is required to provide the employee with a place to sit, a table/desk or surface to place a breast pump and personal items, access to electricity, a sink with running water, and a refrigerator. The ordinance also states that lactation break time “shall, if possible” run concurrently with any break time already provided to the employee, such as unpaid rest periods.

The ordinance’s requirements are certainly rooted in an important public policy addressing the health of new mothers and babies.  But potential problems arise from the ordinance’s use of vague phrases such as “close proximity to employees’ work area.” How close does “close proximity” mean: the same room? Down the hall? In the same building? This means the ordinance is in dire need of clarification to help both employers and employees comply with its novel terms. Enter the San Francisco Office of Labor Standards Enforcement and Department of Public Health to provide guidance.

Administrative Guidance Sheds Light On Compliance Expectations

Perhaps recognizing its own shortcomings, the ordinance requires the San Francisco Department of Public Health to provide employers with guidance for best practices for accommodation, as well as a model policy and model lactation accommodation request form.  To that end, the Department recently posted samples of a Lactation Accommodation Policy and Request for Lactation Accommodation that employers may use in its own operations or as guidance to develop its own policies.

The Department also posted a summary of legal requirements and best practices.  The summary is based on the previous public memo issued by Supervisor Katy Tang, who is the supervisor responsible for drafting and proposing the ordinance.  Interestingly, the “best practices” include “optional but highly recommended amenities” such as a hospital-grade breast pump, calendar or room reservation system, a full length mirror, Wi-Fi, “resource station” for educational literature, and lockers to place personal belongings. They also suggest temporary reduced hours, job sharing, flex time, telecommuting, and allowing the caregiver to bring the child to workplace for feedings. The ordinance currently does not require these amenities, but these best practices may foretell an expectation of how the City may interpret (or amend) the ordinance down the road.

City regulators may also issue interpreting regulations, but that would require adherence to a lengthy rulemaking process that would include the opportunity for stakeholders to provide public comment. We have been in frequent contact with the helpful analysts at the OLSE regarding additional guidance, and have been told that they are still working on the guidance in anticipation of the January 1, 2018 effective date.  Of course, we will continue to update readers on any future developments.

Workplace Solutions

The ordinance requires San Francisco employers to issue its lactation accommodation policy to employees, so employers should review and, if necessary, update their policies to comply.  While the City has posted a sample policy and request form, sample policies are not always right for every employer.  As always, employers still should ensure that any policy they implement and enforce is right for their own operations.

If you would like assistance with a review of your policies, please feel free to contact one of Seyfarth Shaw’s attorneys.

Seyfarth Synopsis: Since the days of Buddy the Elf’s short stint as a retail employee, New York City and many other municipalities have adopted predictive scheduling laws. Though California does not yet have a such a law, San Francisco, Emeryville, and San Jose have adopted predictive scheduling ordinances. With the bustling holiday season upon us, covered employers should make sure that they are complying with these ordinances. We highlight here the requirements of these predictive scheduling ordinances while pointing out some of the best ways to ensure compliance with them.

San Francisco’s Formula Retail Employee Rights Ordinances. Francisco! That’s Fun to Say! Francisco… Frannncisco… Franciscooo…

Which employers are covered? San Francisco’s Formula Retail Employee Rights Ordinances apply to retail establishments with at least 40 locations worldwide and 20 or more employees in San Francisco. The term “retail establishment” is defined loosely to cover many businesses. An employer is considered a retail establishment if it maintains at least two of the following features: a standardized array of merchandise, a standardized facade, a standardized decor and color scheme, uniform apparel, standardized signage, a trademark, or a servicemark. Thus, a food establishment may be considered a retail establishment under the Ordinances. (We know what you are thinking, and no: covered food establishments are not limited to those serving the four main elf food groups—you know, candy, candy canes, candy corns, and syrup.)

In addition to applying to retail establishments, the provisions apply to property services contractors (e.g., janitorial and security services) for work performed in San Francisco at a retail establishment covered by the Ordinances.

What is required under the law? Employers that are covered by San Francisco’s Ordinances are required to do the following:

  • Provide notice:
    • Provide new employees with an initial estimate of their work schedules upon hire. This estimate must include the minimum number of working and on-call shifts the employee can expect to work and the days and hours of those shifts.
    • Provide employees with notice of their work schedules at least two weeks (14 days) in advance.
  • Provide compensation for changes to schedules:
    • If a change is made to an employee’s schedule after the work schedule has been posted, the employer may be required to compensate the employee for the changes. If between 24 hours and seven days remain until the shift, employees are entitled to one hour of pay at regular rate; if employees receive less than 24 hours’ notice, they are entitled to two hours of pay at regular rate for each shift of four hours or less, and four hours of pay at regular rate for each shift of more than four hours.
    • If an employee is scheduled for an on-call shift but is ultimately not required to come into work, then the employee is entitled to two hours of pay at the employee’s regular hourly rate for each shift of four hours or less, and four hours of pay at the employee’s regular hourly rate for each shift of more than four hours.
  • Exceptions: Notice and compensation are not required if a change was needed to address unexpected employee absences due to illness, vacation, or employer-provided time off of which the employer had less than seven days’ notice. Similarly, notice and compensation are not required if a change was needed to address unexpected employee absences due to failure to report to work, termination, or disciplinary action. Similarly, employees are not entitled to notice or compensation when they have to work overtime. To review all of the applicable exceptions, click here.
  • Offer additional work: Before hiring new employees the employer must first offer the additional work to existing qualified part-time employees.
  • Equal treatment: Employers must treat part-time and full-time employees equally with respect to wages, access to time off, and promotion eligibility.

Key Points to Remember About Emeryville’s Fair Workweek Ordinance if You Want to Avoid the Naughty List

Which employers are covered? Emeryville’s Fair Workweek Ordinance applies to retail firms with 56 or more employees globally, and fast food firms with 56 or more employees globally and 20 or more employees within Emeryville. The term “retail firm” is defined narrowly and includes department stores and specialty retailers. A fast food firm is one that does not serve alcohol and that requires patrons to pay before they eat. So if you are serving up the “World’s Best Cup of Coffee” in Emeryville, you just might be covered by the City’s Ordinance.

What is required under the law? Employers that are covered by the Emeryville Ordinance must do the following:

  • Provide notice:
    • Provide new employees with an initial estimate of their work schedules upon hire. This estimate must include a good faith estimate of the employee’s work schedule.
    • Provide employees with notice of their work schedules at least two weeks (14 days) in advance.
  • Provide compensation for changes to schedules:
    • If a change is made to an employee’s schedule after the work schedule has been posted, the employer may be required to compensate the employee for the changes. If between 24 hours and 14 days remain until the shift, the employee is entitled to one hour of pay at their regular rate. If less than 24 hours’ notice is provided and the employee’s hours are canceled or reduced, the employee is entitled to four hours or the number of hours in the scheduled shift, whichever is less. Employees are entitled to one hour of pay at their regular rate for all other changes.
  • Exceptions: As with San Francisco’s Ordinances, Emeryville’s Ordinance contains exceptions. Emeryville has far fewer exceptions, however, than San Francisco does. For instance, requiring an employee to work overtime constitutes a change under the Emeryville Ordinance and entitles the employee to additional pay.
  • Offer of additional work: Before hiring new employees, the employer must first offer the additional work to existing qualified part-time employees.
  • Entitlement to rest periods: Employers must not schedule or require an employee to work during rest periods, without the employee’s consent. The rest period includes the first 11 hours after the end of the previous calendar day’s shift and the first 11 hours following the end of a shift that spanned two calendar days. Employees who agree to work during the rest period are entitled to compensation at one-and-a-half times their regular rate of pay.

San Jose’s Elf-Sized Predictive Scheduling Ordinance

Though San Jose’s Opportunity to Work Ordinance is not, strictly speaking, a predictive scheduling law, the ordinance does require employers to offer additional work to existing qualified part-time employees before hiring new employees. To learn more about San Jose’s Ordinance, click here.

I Like to Comply, Complying’s My Favorite

Though navigating the San Francisco, Emeryville, and San Jose predictive scheduling ordinances is not as difficult as navigating one’s way through the seven levels of the Candy Cane forest, through the sea of swirly twirly gum drops, and out the Lincoln Tunnel, we want to help employers make sure that they are compliant. Here are some tips to help covered employers navigate these predictive scheduling laws:

  • Employers should be sure to keep their employees informed by providing employees with predictive scheduling policies.
  • To the extent possible, employers should try not to change employee schedules after they have been posted. That would be the simplest way to avoid liability under the Emeryville and San Francisco ordinances.
  • At least with respect to covered employees working in San Francisco, employers should minimize or eliminate the use of on-call shifts, except where necessary. Remember, absent limited exceptions, on-call employee who call in and learn their services are not required will be entitled to predictability pay.
  • Though the ordinances do not require communications regarding schedule changes to be in writing, employers would be wise not to solely rely on oral exchanges. It is best to have a signed, written record of schedule receipt and schedule changes.
  • Though the holiday season is an especially busy time for many employers, they should avoid hiring seasonal employees until they have offered the additional hours that they need covered to existing part-time employees.
  • At least in Emeryville, employers should try not to ask employees to work overtime. A covered Emeryville employee who works overtime is not only entitled to compensation at one-and-a-half times their regular rate of pay, but also entitled to one hour of predictability pay.

Workplace Solutions

With the holiday season upon us, employers have a lot to do. One important thing to do is to take the time to comply with any predictive scheduling law. Keep in mind that while California is peculiar, it is not the only place where one can find predictive scheduling laws. Don’t hesitate to reach out to Seyfarth to help you determine whether you are a covered employer under any state or municipal predictive scheduling laws.

Edited by Coby Turner.

Seyfarth Synopsis: There are many different ways to pay employees in California. What is the scoop behind paying commissions? What are commission agreements and how have courts deciphered their coded mysteries? Read on for the most current intelligence from the SIA (Seyfarth Intelligence Agency).

Rogue Nation: The Rough Terrain Surrounding Commissions

What are commissions? Labor Code Section 204.1 defines a commission as a wage earned from either a sale of a product or a service when the wage depends proportionately on the amount or value of the goods or services sold. Deciphering whether a pay plan is truly commission-based can be a hard code to crack.

While sometimes confused with bonuses or piece-rate pay, commissions are neither. As stated above, they are wages earned by selling a product or a service, rather than by performing a particular task or service. The Labor Code protects commission pay just as it protects other types of wages.

Commissions are not profit-sharing plans, unless the employer has offered to pay a fixed percentage of company sales or profits as pay for work performed.

Paying commissions at termination. Labor Code Section 201(a) provides that earned commissions—like wages generally—are due as soon as employment ends. A DLSE Opinion Letter, however, states that a commission may not actually be earned until the employer has all the information needed to calculate the commission. Payment at separation is subject to this same rule—meaning that calculating wages owed and when they are due to a terminated commissioned employee can be complicated.

The Commission Ultimatum: You Need a Commission Agreement

Under Labor Code Section 2751, employers must provide most commissioned employees with a written agreement detailing how their commissions will be calculated and paid. This duty applies even if only some of the employee’s wages are in the form of commissions. Employers must give each such employee a signed copy of the commission agreement and obtain from the employee a signed receipt.

The conditions determining when a commission is “earned” must be defined in the commission agreement. The employer has a range of options in describing those conditions, so long as they are clear. For example, a commission can be earned when a customer executes a sale agreement, or not until the customer actually completes payment for the item or service. See Koehl v. Verio, Inc. (Cal. Ct. App. 2016) (commissions are earned when the employee has perfected the right to payment: when all the contractual conditions for requiring payment have been met).

Commission agreements can also give an employee advances on commissions, to provide the employee some cash flow before a commission is earned. These advances can act as loans, which the employee must re-pay if not earned, depending on the specific agreement in place.

Bridge of Lawsuits

Unfortunately, the open and customizable nature of commission agreements has led to litigation and trouble for employers down the road.

As commission agreements are contracts, much of the litigation surrounding their enforcement and interpretation has depended on how they are drafted. California courts will not enforce unlawful or unconscionable terms and will construe any ambiguities against the drafter of the commission agreement—usually the employer. See Aguilar v. Zep Inc. (N.D. Cal. 2014) (finding it impermissible to deduct from commissions such items as credit card fees and costs of samples).

Conflicts can also arise if employers misclassify as exempt an employee who earns some wages in the form of commission. Under California’s “commissioned sales exemption,” employees covered by Wage Order 4 or Wage Order 7 qualify as commissioned employees exempt from overtime-pay requirements only if: they earn at least 1.5 times the minimum wage and earn more than one-half of their income from commissions. This exemption applies only when conditions are met during a set pay period, which can mean that a regularly paid employee may be exempt during one pay period and not exempt during another pay period, when the employee has earned less commission. See Peabody v. Time Warner Cable Inc. (Cal. 2014) (an employer may not attribute commission wages paid in one pay period to other pay periods in order to show the minimum earnings needed to establish the commissioned employee exemption). Note also that the federal FLSA limits its own exemption for commissioned employees to those working for retail or service establishments. See 29 C.F.R Section 779.412.

Workplace Solutions: Searching for a “Safe House”?

Thinking of paying your “agents” by commission? Wondering if your commission agreements are a potentially deadly affair? Your friendly SIA Agent here at Seyfarth is happy to provide back-up.

Seyfarth Synopsis: Countless California employers have found that veterans make outstanding employees. As we approach the Veterans Day holiday, read on for a list of the benefits of hiring veterans, as well as helpful resources for veterans seeking employment. We further discuss some state and federal job protections for employees who are in the military.

Why Hire a Vet? 

There are many good reasons to consider hiring veterans. First, employers can apply for federal Work Opportunity Tax Credits (WOTC) of up to $9,600. The California Employment Development Department is the WOTC certifying agency for California employers. You can learn more about this program here.

Moreover, veterans bring invaluable skills. They are trained to be team focused, mission oriented, responsible, dedicated, respectful, and accountable. And many have learned to work well under pressure, to adapt quickly to change, and to understand and respect the chain of command. These qualities can enhance the capabilities of any workforce.

California Resources for Veterans

For veterans seeking employment, California offers various services and benefits. Services include (1) helping veterans find jobs, (2) unemployment benefits while veterans seek jobs, and (3) apprenticeship and on-the-job training programs that pay veterans while they prepare for a sustainable career. The California Department of Veterans Affairs maintains numerous employment-related resources for veterans. It also sponsors a business enterprise program for disabled veterans who want to own a business.

Protection for Military Leave and National Guard Service

Employees who are called to active duty enjoy job protections, under both federal and California law. Protected employees include members of the reserve corps of the armed forces of the United States, the National Guard or the naval militia, and members of the California State Military Reserve.

Federal Law: USERRA

The federal Uniformed Services Employment and Reemployment Rights Act (USERRA) protects employees who need time off from their civilian jobs for military service. To be eligible for employment rights under USERRA, (1) the employee must hold or have applied for a civilian job, (2) the total length of the absence cannot exceed five years, and (3) the employee must report to work or submit an application for reemployment in a timely manner.

USERRA contains many complex provisions beyond the scope of this discussion. Generally, USERRA provides that returning service members are to be reemployed in the job that they would have attained had they not been absent for military service, enjoying the same seniority, status, and pay they would had if they had remained continuously employed. USERRA also requires employers to make reasonable efforts—such as training or retraining—to enable returning service members to qualify for reemployment. USERRA also provides that an individual performing military service is deemed to be on a furlough or leave of absence and is entitled to the non-seniority rights accorded to similarly situated individuals who are on non-military leaves of absence.

California Military Leave Laws

California, going beyond the protections afforded by USERRA, provides additional protections for all regular full-time, part-time, and probationary employees who need to be absent from work because of eligible military service, and also for military spouses.

Employees may be eligible to take up to 17 days of unpaid leave per year to engage in military training, drills, encampment, naval cruises, special exercises, or similar activities if they are a member of the reserve corps of the US armed forces, the National Guard, the Naval Militia, or the California State Military Reserve. California employers must not discharge a returning employee who was on active military duty with the National Guard, except for cause, within one year after being restored to the position.

In addition, employees who are the spouses or registered domestic partners have leave rights. California employers with 25 or more employees must grant up to 10 days of unpaid leave to employees who are married to a person who is on leave from a combat zone.

Workplace Solution: Next time you are hiring, consider whether a veteran might fit your bill. Your favorite Seyfarth attorneys are standing by to provide legal assistance with recruiting and hiring questions.

Seyfarth Synopsis: With the widespread use of direct deposit, the thought of an employee regularly reviewing wage statements may seem inconceivable. Still, employers must ensure that their wage statements strictly comply with California law, as even trivial, inadvertent failures to do so can lead to heavy penalties. We highlight here the information to include on wage statements while pointing out some of the legal landmines trod upon by unwary employers.

Labor Code Section 226(a) Is Pain. Anyone Who Says Differently Is Selling Something.

Much like The Princess Bride, wage statements remain incredibly relevant. Section 226(a) forces employers to report nine items of information on each itemized statement that accompanies a payment of wages:

  1. gross wages earned by the employee,
  2. total hours worked by the employee,
  3. all applicable hourly rates during the pay period,
  4. all deductions taken from the employee’s wages,
  5. the net wages the employee earned,
  6. the pay period that the wage statement reflects, including the start and end date,
  7. the employee’s name and ID number (which can be the last four digits of the Social Security number (SSN)),
  8. the name and address of the legal employer, and
  9. if the employee earns a piece rate, then the number of piece-rate units earned and the applicable piece rate.

(Note that employers must also report available paid sick leave, either on the wage statement or on another document issued at the time of each wage payment.)

Avoiding the Fire Swamp: Wage Statement Line Mines to Avoid

  • If you use a payroll service to prepare the itemized wage statement, can you just “set it and forget it”? No, you can’t. Many excellent payroll services do get it just right. Meanwhile, other companies, operating nationally, have not always heeded each California-specific requirement. And they do not feel it’s their responsibility; it’s yours. They do not offer legal advice or indemnification to prevent and correct wage-statement mistakes. If you are the typical California employer, you are on your own to ensure that your wage statements are sufficiently “Cal-peculiar.”
  • If you create in-house wage statements, can you rely on your IT department to capture all the right payroll information in the format that HR has designed? No, you can’t. Many companies have lamented the discovery that the perfect wage statement designed by the legal or HR department did not emerge quite as envisioned once IT completed all the necessary programming. In the world of wage statements, for every ugly duckling turning into a swan there is a swan turning into an ugly duckling.
  • Many well-regarded employers—national behemoths and local start-ups alike—have tripped over innocent, often trivial wage-statement mistakes to fall into a pit of despair, where they’ve found themselves inundated by millions of dollars in penalties that bear little or no relation to any actual employee harm.
  • Among the alleged hyper-technical violations causing employers to spend heavily to defend themselves—and sometimes causing them to incur huge penalties—have been these:
    • Neglecting to total all the hours worked, even though the wage statement lists all the various types of hours individually.
    • Accidentally showing net wages as “zero” where an employee gets direct deposit.
    • Leaving off either the start or end date of the pay period.
    • Not showing the number of hours worked at each applicable rate.
    • Recording an incomplete employer name (“Summit” instead of “Summit Logistics, Inc.”).
    • Recording an incomplete employer address.
    • Failing to provide an employee ID number, or reporting a full nine-digit SSN instead of a four-digit SSN.
  • And remember to keep a copy of your wage statements (or to have the capability to recreate what the employees have received).

Reaching the Cliffs of Insanity: How Recent Case Law Intensifies the Impact of Section 226

By now, you surely ask, “Can it possibly get any worse than that?” Yes, it can. It has been bad enough, of course, that hyper-technical failures to show an item required by Section 226(a) could create large liability unrelated to any real harm. But, until recently, employers at least had the defense that no penalty was available absent a “knowing and intentional” violation, because that was what a plaintiff had to prove to get penalties ($50 or $100 per employee per pay period) under Section 226(e).

But now, if a recent Court of Appeal decision stands, that defense has been stripped away. Lopez v. Friant & Associates, LLC held that an employer whose wage statement failed to record an employee ID number could be subject to penalties under California’s Private Attorneys General Act (PAGA), even though the mistake was inadvertent and promptly corrected, and even though the employee admittedly suffered no injury by his employer reminding him each pay period what the last four digits of his SSN are. Lopez permitted the employee to sue for PAGA penalties without needing to prove the “injury” and “knowing and intentional” elements of a Section 226(e) claim. In short, Lopez is about as appealing as a Rodent Of Unusual Size (R.O.U.S.). See our detailed client alert on Lopez here.

Workplace Solutions: What Would Miracle Max Do

Though the exact impact of Lopez is unclear at this point (Lopez did not decide whether the extra PAGA penalty would be $250 per employee, under Section 226.3, or $100 per employee per pay period, under Section 2699(f)), Lopez rings the alarm that employers must proactively ensure that their itemized wage statements strictly comply with Section 226(a), lest they be the next to fall in the pit of despair. When is the last time you did your self-audit? Don’t hesitate to reach out to Seyfarth to help you ensure your wage statements are compliant.

Seyfarth Synopsis: This post continues our blog series on the Future of Work, and discusses how, in California as elsewhere, performance management strategies continue to develop in response to the changing workplace. Access our prior Future of Work posts (on independent contractors in California and the effects of job automation) here and here.

Innovation in employee management has been a global phenomenon for the past several years. In San Diego the week of September 14th, a global knowledge-exchange network known as Talent Management Alliance put on a three day Talent Performance Management Summit. Speakers and attendees talked about the radical changes in performance management that have sprung up in recent years in answer to evolving demands of increased competition, the way companies operate, and employee expectations. A number of innovators are based in California (e.g., Gap, Adobe, Cisco). Not surprisingly, a sizeable chunk of the speakers at the San Diego TMA Summit are also from companies based in the Golden State.

Annual Performance Reviews Going the Way of the Dodo

As we all know, the traditional annual performance evaluation is used to rate employees, retrospectively, on how they did during the previous year in a number of areas (such as teamwork, amount and quality of work, quality of client service) and to justify salary increases or decreases. A required annual process has some obvious advantages, including (ideally) consistency, and use of objective criteria. The evaluation can be especially important in the event of litigation, as a contemporaneous record of supervisory impressions and corroborator of employer actions.

However, for leading edge employers in California and elsewhere, this model is outmoded. Progressives predict that the use of annual reviews will continue to decline and that more frequent, goals-oriented communications (often utilizing technology), employee training, attention to personal development, and coaching (rather than managing) will increase.

A New Performance Management Paradigm

These changes reflect updated thinking about what works to drive improvement in an employer’s bottom line. There is new emphasis on maintaining a nimble, employee oriented, data-driven corporate culture, as well as recognizing the roles of science and psychology in motivating employees. Research has shown that Millennials (aka “Gen Y”), who by 2020 will comprise almost half of the U.S. workforce, value receiving more frequent feedback, work-life balance, satisfaction in their work (as opposed to “just having a job”), and more independence and learning opportunities.

Not surprisingly, the new performance management approaches speak in these terms, using concepts like “expectations, goal-setting and feedback.” They ask how employees are measuring up against their goals/expectations, and how management can help. And they do so frequently (i.e., quarterly, if not monthly, or “continuously”). In addition to keeping their employees engaged and productive, these approaches can help employers can gain more current information to reward good work and identify emerging leaders.

Management Training (including How to Coach for Performance) is Essential

However, even with the help of workplace consultants and new generations of management and feedback software, the new performance management paradigms place intense demands on managers and supervisors to implement the changes effectively. Supervisors and managers in California already typically carry a heavy burden of overseeing non-exempt compliance with numerous wage and hour laws. No performance management model, standing alone, can ensure 100% compliance with a company’s employee management objectives, including consistent compliance with anti-discrimination laws and diversity goals. Training thus becomes more important than ever.

Workplace solution.  Employers in all industries and service sectors are developing their own approaches to managing their employees, including some using hybrid approaches that combine frequent feedback with more formal ratings. Even if you are not ready to join the talent management revolution, you should be familiar with what the discussion is about, and able to evaluate whether your organization’s processes are fulfilling your needs.