Wage and Hour

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Guest blog post by Mikella Wickham:

They say location is everything in business.  How about classification of workers?

In certain industries, workers have a unique combination of specified skills and

Fit people working out
Copyright: wavebreakmediamicro / 123RF Stock Photo.

relative freedom to do their job.  As a result, small businesses are stuck between a rock and a hard place when deciding whether their workers are employees or independent contractors.  Of the many small businesses that want to pay their workers fairly and legally, it is becoming harder to do so without going out of business altogether.

Take fitness companies, for example.

Fitness instructors are not the average employees.  They may have input on their schedules (because they only want to work mornings or weekends).  They may work at several different studios, or work more than one job.  Often they teach in their own style, and even impact how many customers attend the classes.  Very often customers are loyal to a studio based on their rapport with a particular instructor.  Does the fitness company pay that person as an employee or as an independent contractor?

Let’s say the employer pays the instructor as an employee, on an hourly basis.  That worker becomes much more expensive for the business because she is covered by workers’ compensation insurance, gets paid sick leave, is paid at least the minimum wage (which keeps going up), and gets overtime, meal breaks and paid rest breaks.  Given all of that, how does the employer incentivize the instructor to bring more customers in the door to offset the additional costs incurred?

Alternatively, if a company pays a fitness instructor as an independent contractor (as many do), but still controls aspects of what the instructor does (such as what she wears, the music she plays, or the moves she teaches), it risks a misclassification claim.  Defending such lawsuits can mean death to a small business.

With no law designating a “dependent contractor” middle ground category, businesses are left to choose from a pick-your-poison set of options.

Standing next to larger brand name fitness companies, smaller fitness companies who can afford to pay employees well, or eat losses at smaller studios for the larger corporate good, can find themselves disadvantaged in a David and Goliath battle to simply have a place in the market.

As we have suggested, perhaps the law will carve out an exception for businesses in this category.  The future will tell.  In the meantime, small businesses have a tough decision to make: pay up now, or, perhaps, pay more later.

Mikella P. Wickham is a summer associate, based in the firm’s Los Angeles office.

There’s a saying that “Bad facts make bad law.” At least that’s the way I was taught it. A different version: “Hard cases make bad law” has its own Wikipedia entry. While the wording is different, the meaning is the same. When the facts are extreme, they serve as a poor basis for defining general legal principles.

Here are the bad facts:

A dairy hired an employee even though it knew he was not authorized to work in the US. When he told them after two years that he had a better offer from another dairy, his employer threatened that, if he left, it would report the other dairy to federal immigration authorities. So he stayed.

Nine years later, he sued his employer for a variety of workplace violations, including failure to pay overtime or to provide meal and rest breaks. Ten weeks before the case is going to trial, the employer’s lawyer schedules a deposition of the plaintiff but arranges to have US Immigration and Customs Enforcement (ICE) take him into custody and deport him. There’s even an e-mail from the lawyer to ICE letting them know the employee “will be attending a deposition next week. If there’s an interest in apprehending him, please let me know so that we can make the necessary arrangements…” Apparently, the employee got wind of the plan and agreed to settle his case. To make matters worse, the lawyer had used this ploy on at least five other plaintiffs who were suing his clients.

Copyright: cherezoff / 123RF Stock Photo

The plaintiff then sued the attorney for retaliation under the Fair Labor Standards Act. He chose that statute because it allows such claims against “any person acting directly or indirectly in the interest of an employer in relation to an employee.” The federal district court dismissed the claim because the lawyer did not exercise any control over the plaintiff’s employment. However, the 9th Circuit Court of Appeal reversed. In doing so, it rejected the need for any economic control. It said that, while only employers can be responsible for not paying employees correctly, anyone acting on behalf of the employer can be liable for retaliation.

What the lawyer did was wrong. There are ethical rules that state that an attorney in California “shall not threaten to present criminal, administrative, or disciplinary charges to obtain an advantage in a civil dispute.” Lawyers who violate that rule or otherwise abuse their power, can be sanctioned, suspended, and even disbarred. There are also civil claims available for abuse of process and malicious prosecution. So there are penalties for this type of behavior already. However, giving plaintiff’s the right to sue their employer’s lawyers for retaliation will lead to far more problems than it will solve. Litigation is inherently contentious. Parties tend to dislike the lawyer on the other side. But in every other situation I know of, courts have ruled that there’s no right to sue the other side’s lawyer and that allowing such suits will lead to a multiplicity of litigation. The Ninth Circuit, dealing with an extreme situation, held otherwise. Like the saying goes, bad facts make bad law.

The case is Arias v. Raimondo. You can read the opinion here.

Just because it’s logical doesn’t make it legal. And more often than not, what is logical in California is not necessarily legal.

Take the issue of “comp time.” Typically comp time is used to refer to an equitable idea, where someone works when she isn’t supposed to, and in turn is given different time off as “comp time.” Often such comp time is taken off the books, such as an “extra” vacation day that is not logged as such. That can mean the employer has time records that are purposely inconsistent with hours worked. And that’s a problem.

For exempt employees, comp time is really a misnomer. An exempt employee is paid a salary regardless of hours worked (or not worked) in a week. So an exempt employee who works hard one day still gets paid the same as one who doesn’t. Giving an exempt employee a “comp day” for working on a holiday or a 6th day is really just appropriately treating them as exempt. More often than not, the exempt employee is still checking in (i.e., “working” from home) anyway.

For non-exempt employees in California, such a practice is especially fraught with minefields. The key to paying non-exempt employees correctly is to make sure hours worked (and breaks taken) are accurately logged. So, if a non-exempt employee works on a day she typically is scheduled off, she must be paid for that time, even if it results in daily or weekly overtime. If she’s not paid, that’s illegal. Also, paying her for another day when she hasn’t worked, by putting fake hours on a timesheet, is also a problem, as it sets a precedent for falsifying time records.

Of course, the employer can log the day as a paid “comp day,” but in my experience, most employers don’t have that payroll code, and if they do, they don’t use it consistently. And treating employees inconsistently creates another set of issues.

I have experienced employers get sued for inconsistent comp day practices. It can be from exempt employees who claim they are owed a certain number of comp days for holidays worked (when they were supposed to get another day off but never did). That allegation typically comes with a claim for waiting time penalties for failure to pay all wages upon termination. Or, it can be from non-exempt employees who were given comp time instead of being paid overtime. Even if they agreed to it at the time (“don’t worry boss, I’ll take tomorrow off instead of getting the overtime“), it still doesn’t make it legal.

Back in May there was some press about the Working Families Flexibility Act of 2017 that passed the US House of Representatives, and was moving on to the US Senate for deliberations. But even if that passes and amends the FLSA to allow for comp time instead of overtime, it will not apply in California. Why?

32003831 – logical illogical road sign

Always remember that California is special, and when it comes to wage-and-hour law, what is logical is typically illegal.

With the minimum wage increasing in cities across the state, I have been getting numerous calls and e-mails about those increases.  I blogged about the announcement of the LA Hotel Ordinance increase already, but there’s more.

In an effort to get everything in one place, I’ve compiled links to all the new minimum wage increases that take effect July 1, 2017. There are many more local ordinances that have January increases but we can worry about those in a few months!

County of Los Angeles (unincorporated)
City of Emeryville
City of Los Angeles
City of Malibu
City of Milpitas
City of Pasadena
City of San Francisco
City of San Jose
City of San Leandro
City of Santa Monica

I was recently invited to contribute a chapter on employment law to the 2017 Israel Desk International Legal Guide. As more and more Israeli companies bring their operations to the U.S., they learn firsthand the intricacies of our employment laws. The chapter outlines six trends that I suggested that they pay attention to. They include wage and hour laws, equal pay, accommodating disabled workers, whistleblower claims, local regulations, and trade secrets.

Copyright: slidezero / 123RF Stock Photo

On the topic of trade secrets, I had the opportunity to give a presentation in Tel Aviv last month on Protecting Your Trade Secrets in Silicon Valley and Beyond to members of IATI (Israel Advanced Technology Industries – an industry group for high-tech and life science companies). You can read my chapter on legal trends and see a copy of my presentation on trade secrets.

Fox Rothschild LLP’s Israel Practice Group is adept at helping companies based in Israel with their U.S. legal needs.

Its almost July 1st and that means increased minimum wages in the City of Los Angeles as well as under the Citywide Hotel Worker Minimum Wage Ordinance.  Hotel workers covered under the Ordinance will see their hourly rate jump from $15.37 per hour to $15.66 per hour, as announced this morning.  Don’t shoot the messenger!

Remember, there are still ways for hotels to trim labor costs, as discussed here.

We’ve discussed before how phishing scams target employers. A new scam focuses on defendants who have settled class-action claims. The scammers send wire transfer instructions that appear to come from reputable class-action claims administrators. If the defendant wires the funds though, it eventually discovers that it is the victim of a spear phishing attack and that the account it wired the funds do is fraudulent. It is unlikely to ever see that money again, but still owes the money it agreed to provide to the class-action plaintiffs and their attorneys.

Copyright: maxxyustas / 123RF Stock Photo
Copyright: maxxyustas / 123RF Stock Photo

We heard this cautionary tale from a LA Superior Court judge who wanted to get the word out about this new scam. Some poor company, which the judge understandably didn’t name, was out $500,000. This could obviously happen in any case, but is a bigger risk in cases where the settlement details and timeline for payment are readily available.

Consider yourself warned!

Earlier this week, in Mendoza v. Nordstrom, the California Supreme Court clarified some ambiguous issues involving requirements under the California Labor Code involving when a “day of rest” must be provided to employees.

Woman laying on hammock during day of rest
Copyright: bialasiewicz / 123RF Stock Photo

The Court clarified:

  • That a day of rest is guaranteed for each workweek (as the workweek is defined by the employer).
  • There is an exception for employees who work shifts of six hours or less every single day in the workweek.
  • An employer can’t “cause” an employee to go without a day of rest, but an employee can “choose” to forgo that right as long as s/he is fully apprised of the entitlement.

What does this mean for California employers?

First, it means that there is no rolling seven day period in which a day off needs to be provided. Rather, if an employer defines its workweek as Monday through Sunday, one day off must be provided in that week. It can be Sunday one week, Tuesday the next week, and Friday the next. That is good news and avoids some scheduling nightmares.

Second, it means that part-time employees who consistently work short shifts of six hours or less can be scheduled to work seven days. But be careful, any shift over six hours in that week (even by a few minutes) will moot that exemption.

Third, there is still an open issue as to when an employer “causes” an employee to go without a day of rest. The Court was not as clear on this issue as many employers would have liked. To address this ongoing ambiguity, California employers should:

  • Add a provision to their employee handbooks advising employees of their right to one day of rest per workweek. They should also make sure the workweek is clearly defined.
  • Train managers not to pressure employees to work seven days, and to take shifts to cover other employees when they only have one day off.
  • Consider getting some sort of attestation from the employee who works a 7th day in any workweek that s/he is doing so by choice.

Finally, what this case has not changed is the commonsense advice that everyone should get one day of rest per week. It is certainly a better practice (whether required or not), to allow an employee one day off to rest, rejuvenate, and get some perspective away from work.

Earlier this week, I was advising a client on the termination of one of their spa employees. During the course of the conversation about his poor performance, the issue of his compensation came up. Turns out, while the termination was completely legitimate and non-discriminatory, we discovered liability for the client based on the employee’s commission-only salary structure and failure to provide meal and paid rest breaks. The next evening, while having my haircut, I raised this compensation structure with my stylist, also a massage therapist at a Southern California spa. Lo and behold, same arrangement.

Yesterday, a judge approved a nearly one million dollar settlement for the Sonoma Mission Inn’s posh Willow Stream Spa to settle a wage and hour, 103-member, class action lawsuit. That doesn’t sound relaxing at all.

Woman with face mask in a spa
Copyright: bds / 123RF Stock Photo

Here are some issues I have seen the past few months that can get spas and salons in trouble:

1) Paying by piecework (e.g. per treatment or service): this implicates AB 1513, which became effective January 2016, and requires compensation for all hours worked during a pay period, including breaks and other “non-productive” time. Many workers on a piece work plan are still not being paid for breaks as required by law. AB 1513 also requires a host of record-keeping obligations.

2) Paying by commission: legally speaking, commission payments are a percentage of sales and should not be paid for services performed. With spa or salon employees, it is arguable whether they really “sell” anything, in which case, a commission structure doesn’t work. Payment by commission requires the terms to be in writing and paid in the pay period they are earned. Employers frequently confuse the piece-rate and commission concepts and wind up in non-compliance.

3) Failing to pay minimum wage or overtime: because of the issues above, some spa workers are not receiving proper minimum wage or overtime payments. At spas where the compensation is a hybrid of compensation schemes, employers must be careful to calculate the regular rate properly.

4) Misclassification: some employers are still classifying therapists and aestheticians as independent contractors in likely violation of CA law. Because these workers are working in the spas at the direction of management, it’s a tough argument to make that such workers are independent contractors and exempt from the issues above.

If you are thinking you need a massage (or stiff drink) after reading this, I’m sure you’re not alone.

California has the most stringent meal and rest break rules in the country. If an employee’s break is not taken within the proper time, is not long enough, or is interrupted, the employer is subject to a one-hour penalty. It’s one thing to impose a penalty on employers for not providing a mandated break. But imposing a penalty because the break is minutes late creates absurd situations.

Copyright: gajus / 123RF Stock Photo
Copyright: gajus / 123RF Stock Photo

Here’s just one example. Nonexempt employees get a 10-minute rest period every four hours or “major fraction thereof.” So an employee who works 10 hours gets two rest periods (plus a meal break). But if the employee works past 10 hours, she becomes entitled to a third rest period. If she isn’t offered it, the employer owes her a one-hour penalty. Suppose the employee goes to her supervisor and says that she worked a bit past the 10-hour mark and she’s ready to go home. The supervisor asks if she’s taken a third rest period and she says “No.” The supervisor then has to offer her a 10-minute rest period. The employee obviously doesn’t want or need a rest period. She’d rather just go home. But if the employer doesn’t offer her the break, it owes her for an additional hour.

Every other jurisdiction manages to see that employees receive breaks without these overly restrictive and punitive provisions. If anything, the situation is getting worse with the recent decision in Augustus v. ABM Security emphasizing that employers must not only “relieve their employees of all duties” during their breaks, but must also “relinquish any control over how employees spend their break time.” So don’t expect the number of class action lawsuits against California employers to decrease anytime soon.