Articles Posted in Wages and Compensation

personal liability for wage violations 558.1Under California Labor Code section 558.1, any employer or other person acting on behalf of an employer, who violates, or causes to be violated, any provision regulating minimum wages or hours and days of work in any order of the Industrial Welfare Commission, or violates or causes to be violated labor code sections 203, 226, 226.7, 1193.6, 1194, or 2802 may be held liable as the employer for such violation. For purposes of this section, the term “other person acting on behalf of an employer” is limited to a natural person who is an owner, director, officer, or managing agent of the employer, and the term “managing agent” has the same meaning as in Civil Code 3294(b).  White v Ultramar, Inc., 21 Cal.4th 563, 573 (1999). This law was enacted to discourage business owners from rolling up their operations and walking away from their debts to workers and starting a new company. Voris v Lampert (1999).

It’s important to note that an individual could not be liable under section 558.1 simply by virtue of his status as an owner, director or officer but he must have been “personally involved” in the alleged violations or “engaged in individual wrongdoing”. Usher v White 64 Cal.App.5th 883 (2021). The Usher court noted that there is no bright-line rule when it comes to finding individual liability, and this determination requires an examination of the particular facts of each case. The Espinoza v Hepta Run Inc. (2022) case in instructive. There, the court found that the company owner’s approval of the policy regarding paying employees was sufficient to show that he caused labor code violations and therefore could be held personally liable, even if the same owner was not involved in day to day business operations.

on-call payThe California on-call pay laws are largely based on balancing fairness between employees and employers. Generally, hours for which an employee has been hired to do nothing while merely waiting for something to happen are hours subject to the control of the employers, and constitute hours worked. (Armour & Co. v Wantock (1944); Skidmore v Swift (1944)). In the case of “standby” or “on-call” time, if the restrictions placed on the time of employee are such that the employee is unable to effectively engage in personal activities, the time is subject to the control of the employer and constitutes hours worked. (Madera Police Officers Association v. City of Madera (1984)).

The determination whether standby time is “controlled” such that it constitutes compensable hours under California law is a multi-factor analysis, set in the 9th Circuit case Berry v County of Sonoma (1994). These factors are:

  1. The geographic restrictions on the employee’s movements;

employee relocation packageThere are two important things any employee who moves for a new job and receives a relocation package as part of the job offer, should keep in mind:

(1) Review the repayment obligation in your relocation package to make sure that it’s fairly drafted. Most relocation packages and sign-on bonuses include a repayment provision, also known as a “clawback” provision. An experienced employment attorney can go over it with you and discuss typical issues that arise with relocation packages, such as wanting or having to leave that job for one reason or another much sooner than expected, as well as negotiating the type of pro-rata repayment plan that will not hold you hostage till the very last day of the total repayment period.

(2) Do not rush to spend every dollar of your relocation package. There is just no way to know for sure how your new job that you are excited about is going to work out. There could be so many reasons why you would want to quit that job and /or even  move back as soon as possible. If you receive a generous relocation package of say $50,000.00, you may only need $10k-$15k for your moving expenses. Hold on to the rest for at least while, until you are settled at your new job in the new city. This way, if you have to leave it all and move back, repaying your employer while you only spent a small part of that amount would be so much easier than if you hurry to spend all that amount right away. I would recommend waiting for at least 6 months after you move, before you touch the remainder of the relocation package that you didn’t have to spend when you moved.

computer professional exemption

Under California Labor Code section 515.5, certain software industry employees are exempt from overtime pay requirements, if they perform specific, exempt duties and receive a rate of pay not less than the statutorily-specified rate.

Effective January 1, 2020, the computer software employee’s minimum hourly rate of pay, in order to be subject to this exemption, increases from $45.41 / hour to $46.55 / hour, the minimum monthly salary exemption will increase from $7,883.62 to $8,080.71, and the minimum annual salary exemption will increase from $94,603.25 to $96,968.33.

In order to be correctly classified as exempt from overtime under the California computer professional exemption, all of the requirements of section 515.5 must be met. Thus, for instance, an employee how is paid more than the above referenced minimum, but who performs work that lacks in creativity and independent judgment required by this law, as it’s often the case with IT administrators, will not qualify for this exemption and should be eligible for overtime pay, like any other non-exempt, hourly employee.

paycheck relocation deductionsIn most cases, it’s not a good idea for an employer to refuse to issue an employee his final paycheck until he repays his relocation bonus. Likewise, it’s a bad idea to unilaterally deduct the relocation bonus amount from that employee’s final paycheck.  Here is why:

First, an employee’s failure to repay his relocation bonus or his failure to honor some other part of your employment agreement is legally not a defense to the legal requirement of paying all wages. A number of laws mandate upon employers to promptly pay all wages due to employees and prohibit taking improper deductions from paychecks except as authorized by law. Further, it has been held that an employer may not set off debts a terminated employee owes the employer against wages due to that employee. Barnhill v Robert Sunders & Co. (1981).

Secondly, when you don’t pay the wages due to an employee, you may be liable not only for the wages unpaid, but also for penalties, interest, and possibly – that employee’s legal fees, if he decides to pursue his claim for unpaid wages in court as a single claim or along with other claims (i.e. wrongful termination, discrimination, retaliation, etc…). This can be especially costly and not worth the risk in a situation where an employee is a high-wage earner, who received a relatively modest relocation bonus, as it may result in much greater liability for waiting time penalties (up to 30 days of that employee’s ordinary wages). To illustrate, imagine the following scenario: you hire a worker at a rate of pay of $800/day after issuing him $10,000 as a relocation bonus to be repaid, if the employee quits or is fired for cause before his one-year anniversary of employment with you. That employee resigns three months later.  You refuse to issue his final paycheck until he repays his relocation bonus. That employee waits for a month and then files a claim for unpaid wage with the Department of Labor. He will then be entitled to his unpaid wages for two weeks plus up to $24,000(!) in waiting time penalties ($800 x 30 days as per California Labor Code 203). That employee then repays you relocation bonus, ending up receiving a total of $14,000 more from you than he should have and otherwise would have.

dynamex decisionBy now,  the California Dynamex decision (Dynamex Opertions West Inc. v. Superior Court) has been thoroughly discussed and analyzed in many publications and legal seminars.  However, here is the big picture that both workers and especially employers should keep in mind, as it will help them understand what’s behind this significant ruling, and avoid liability and significant expenses associated with employee misclassification.

Through the Dynamex decision, California’s highest court sought to address common abuses of workers’ rights that became pretty much an epidemic in this new “gig” economy, where employers would classify workers as contractors under the guise of outsourcing or telecommuting.  Companies would argue that since a worker is free to perform him duties from anywhere and at the time of his choosing, he should be classified as a contractor. The California Supreme Court, however, made it clear that a worker should be classified as an employee even if he has flexibility in work hours and work location, contrary to what many employers have gotten used to believing. The Court has articulate a new “ABC” test for determining whether a worker can be classified as a contractor that has been the law since. This three-factor test states that in order to be properly classified as a contractor, all of the following criteria has to be met:

(A) that the worker is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of the work and in fact; and

deliver driver employee contractorOn April 30, 2018, the California Supreme Court issued its unanimous ruling in Dynamex Operations West, Inc., v Superior Court, making it even harder for companies to classify workers as independent contractors (rather than employees). The previous standard used for classifying workers as employees or independent contractors had been in place since 1989 and was based upon a multifactor test that considered, among other factors, the worker’s skill, the method of payment by the hirer, existence of contractor agreement between the parties, and the nature of the business to determine the level of control exercised over the worker and respectively – whether sufficient control took place for employee-employer relationship to exist.  Thus, companies such as Dynamex had classified their delivery drivers as independent contractors, arguing that their drivers had significant control over their own working conditions by being able to set their own hours and drive for multiple companies.

The new standard adopted by the Supreme Court requires hirers to establish three factors in order to properly classify a worker as an independent contractor – and in the process greatly expands the definition of “employee” under California law:

A.  The worker is free from the control and direction of the hirer in connection with the performance of the work, both under contract for the performance of such work and in fact; and

piece-rate employee in CaliforniaEffective January 1, 2016, employees compensated on a piece base basis have an additional important right  – to be paid for their meal an rest breaks separately and in addition to any piece rate compensation they are otherwise entitled to. This law is codified in Labor Code 226.2.

What is Piece-Rate Compensation?

Per Labor Code 226.2 defines piece rate compensation as work paid for according to the number of units turned out. Here are some of the common examples of piece-rate plans:  automobile mechanics paid a “book rate” per job; nurses paid on the basis of the number of procedures performed; carpet layers paid by the yard of carpet laid; technicians paid by the number of telephones installed; factory workers paid by the widget competed; and carpenters paid by the linear foot on framing jobs. A piece-rate plan may include a group of employee who share in the wage earned for completing the task of making the product. This law does not apply to employees who work on a commission basis.

bonus california lawMany employers, especially in the tech / start-up world often fire an employee right before his bonus or commissions in order to avoid paying that bonus. Of course this is more likely to happen if the bonus due is significant. If there is sufficient evidence that avoiding to pay bonus was the reason or one of the reasons for termination, this can support a claim for wrongful termination in violation of public policy. This type of claim is particularly strong if (1) the employee to be terminated was a high performer (2) he was terminated for a petty reason and/or (3) the company didn’t follow its normal disciplinary, investigation and termination procedures that are in place; and (4) the termination took place right before the bonus would have been due or paid.

Many employers do not realize that bonuses earned (as opposed to discretionary bonuses) are to be treated as wages as per California Labor Code Section 200. Neisendorf v. Levi Strauss 13 & Co. (2006) 143 Cal.App.4th 509. It is also established that an employer cannot terminate an employee and refuse to pay that employee the bonus he or she earned simply because the involuntarily terminated employee was not employed on the date bonuses were paid. McCollum v. Xcare.net, Inc.,212 F.Supp.2d 1142 (N.D. Cal 2002) (employee was terminated two weeks before she would have been entitled to $75,000 in commissions); Ellis v. McKinnon Broadcasting Co. (1993) 18 Cal.App.4th 1796. 

Many comp plans provide employers with discretionary power to forfeit a bonus otherwise due. California law is clear, however, that “where a contract confers one party with discretionary power affecting the rights of the other, a duty is imposed to exercise that discretion in good faith and in accordance with fair dealing.” Locke v. Warner Brothers, Inc., 57 Cal.App.4th 354 (1997).  Therefore, if one party exercises its discretionary authority in bad faith for the purpose of frustrating the other party’s legitimate expectations, it has breached the implied covenant. Commercial Union Assurance Cos. v. Safeway Stores, Inc., 26 Cal.3d 912 (1980). In other words, an employer must have a good reason for bonuses forfeiture, if so allowed by the comp plan, and it can’t just be any reason.

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