December 16, 2019

In the countdown to the new year, it is important to evaluate your employment relationships and ensure compliance with the countless employment laws governing California businesses. Many of these laws are draconian in nature and non-compliance may lead to claims that are crippling to a company, even for the most minor of infractions. To compound matters, the new year inevitably brings changes to employment laws and new interpretations and applications of those laws occur throughout the year by the courts and administrative agencies.

So what are the riskiest areas impacting employers today? Here is a list of the top 5 areas overlooked by California employers:

  • Pre-employment Considerations

Many employment mistakes are made even before the employment relationship begins. Employers are restricted in questions that may be asked of applicants that identify one’s status as a member of a protected class (i.e., race, marital status, sexual orientation, etc.) Also off-limits are questions about an applicant’s criminal history until he/she receives a conditional offer of employment. Employers are also prohibited from inquiries into, and reliance on, an applicant’s salary history, however, applicants may be asked about their salary expectations.

  • Onboarding Documents

Upon hire, employers must ensure that employees have signed employment forms and policies that are required in California. Aside from the many mandatory forms, other pre-employment forms or agreements provide additional protections to employers and are highly recommended.

Further, Labor Code Section 226 requires specific items to be on an employee’s paystub and missing any single item can result in penalties assessed for each non-compliant paycheck issued for each employee.

  • Misclassification, Part 1 (Independent Contractor vs. Employee)

Following the California Supreme Court’s Dynamex decision, the requirement that independent contractors are only those performing work outside the scope of the hiring entities’ business has caused many companies to reclassify their independent contractors as employees.

Recently enacted, AB5 codifies the Dynamex decision into the California Labor Code and creates a number of exemptions for specified occupations from the application of the stricter test, but does not automatically allow for classification as an independent contractor.

Businesses should examine any use of independent contractors for an assessment of the legality of the relationship in the event of a claim, audit, or other challenges.

  • Misclassification, Part 2 (Exempt vs. Non-Exempt)

An employee’s exemption status is whether they are exempt or non-exempt from overtime laws. Many people equate an exempt employee as being salaried and a non-exempt employee as being paid hourly. While most employers would prefer the ease of classifying employees as exempt, misclassification in this area can lead to severe fines, penalties, and class-action litigation.

Exempt Employees are paid for the quality of their work, not the quantity. Proper classification is based on both the duties performed by the employee and salary at least twice the state minimum wage (beginning 1/1/2020: $49,920 for companies with 25 or fewer 25 employees, and $54,080 for companies with over 25 employees.)

Exemptions relieve an employer from having to meet the minimum wage, overtime, reporting time pay, and meal and rest period requirements.

Non-Exempt employees’ compensation is based on hours worked and must comply with federal, state, and local requirements, i.e.., minimum wage, overtime, meal and rest periods, reporting time pay, etc.

  • Employment Policies

There is a myriad of mandated and recommended policies requiring compliance by employers depending on the size and type of company, such as Arbitration Agreements, Paid Sick Leave, Sexual Harassment Training, Pregnancy Disability Leave, Meal & Rest Break policies, etc. If employers do not have an Employee Handbook, certain policies are still required to be in effect. Having additionally recommended policies provide an added layer of protection to employers.

What is an employer to do?

If you have not yet been scared away and are still reading, the good news is that you can manage the risk. Here are some pointers:

  • Draft and implement employment policies that comply with the law and ensure a uniform and unbiased application of those policies;
  • Regularly review and update your employment policies, ideally every year;
  • Train your management and human resource staff to recognize risks;
  • Seek legal assistance without delay if you are unsure about a situation, but seek assistance before taking action with the employee;
  • Promptly investigate employee complaints and do not take disciplinary action until the investigation is complete.

Of course, seeking prompt legal advice prior to the implementation of any policy or procedure is essential and can help ward off countless claims, challenges, audits, and litigation.

Disclaimer: This article has been prepared and published for informational purposes only and is not offered, nor should be construed, as legal advice.