Articles Posted in Wages and Compensation

The Supreme Court has held that time spent waiting for work is compensable if the waiting time is spent “primarily for the benefit of the employer and his business.” Armour & Co. v. Wantock (1944). Whether the time spent predominantly for the employer’s benefit depends on the specific circumstances of each situation. Although there is no hard and fast rule, the cases dealing with the question of compensation and overtime for on-call duty consider two major factors: (1) the degree to which the employee is free to engage in personal activities; and (2) the agreement between the parties.

While the second factor – the existence or non existence of the agreement to waive on-call duty compensation – is usually easy to determine, the first factor includes sub-elements that determine whether the employee is free to engage in personal activities while on call: (a)whether there was an on-premises living requirement; (b) whether there were restrictions on employee’s travel during on-call duty; (c) whether the frequency of calls was so high that it prevented employee from engaging in typical off-duty activities of a person; (d) whether a fixed time limit for response was unduly restrictive; (e) whether the employee could easily trade on-call responsibilities; (f) whether employee actually engaged in personal activities during call-in time.

The above list is not exhaustive but merely illustrative.

An employer may not deduct from employee’s wages moneys lost due to ordinary losses, such as cash shortages, breakage or loss of equipment, etc.) in the absence of showing of dishonesty, willful acts or gross negligence. As the court noted, the law prevents the employer from using wages to shirt business losses to employees, or to make employees insurers of such losses. (Prachasaisoradej v. Ralphs Grocery Co., Inc.)

An employer who resorts to “self-help” in deducting wages of his employees for ordinary losses does so at his own risk. If the employee is found not to have engaged in a dishonest, willful or grossly negligent act, the employee will be entitled to recover the amount of wages withheld, plus any waiting time penalties due.

The above rule applies seems to apply to non-exempt employees only. There is no prohibition on deductions from the earnings of exempt (management level) employees, many of whom work on incentive plans entitling them to a share of profits. Their incentive plan computation of profits properly includes a full range of revenue and expense items, including cash and inventory shortages.

The executive exemption that relieves employers from the obligation to pay overtime compensation applies to any employee:

* Whose duties and responsibilities involve the management of the enterprise in which he is employed or of a customarily recognized department of subdivision of that enterprise;

* Who customarily and regularly directs the work of two or more other employees in that enterprise;

In the ever increasing occurrence of mergers, dissolutions and restructuring of businesses it is not uncommon for an employee to face a situation where he/she is owed wages for work performed, but these wages are unpaid because the entity that purchases the original employer is not willing to pay the wages due or is unable to pay compensation because of dissolution, bankruptcy and/or claims of creditors who argue that they have priority in repayment over other claimants.

Under the circumstances where the assets of a company are sold or transferred, employees may have a priority lien over other creditors for the proceeds of the sale or transfer of assets of a company under California Civil Code section 1205. Under that section all wages earned during the 90 days prior to corporate dissolution or other “not ordinary” business event have priority over virtually all other claims and must be paid first from the proceeds of the sale and transfer. One court noted that wage earners will prevail over other statutory lien holders, including secured creditors such as mortgage lien holders (Myzer v. Emark Corporation (1996)).

In 2007, the California Supreme Court addressed the issue of reimbursement of mileage expenses incurred by traveling employees under California Labor Code 2802 in the case of Gattuso v. Harte-Hanks Shoppers, Inc. The court held that when calculating costs that an employee incurred using his or her automobile, for purpose of statute requiring employers to indemnify employees for costs necessarily incurred in discharge of their duties, use of mileage is permissible, even though it is less accurate than calculating actual expenses incurred. But if employee can show that reimbursement by mileage is less than actual expenses, the employer must make up the difference.

In calculating reimbursement amount due to employee under the labor code section 2802, the employer may consider not only actual expenses that employee incurred, but also whether each of those expenses was “necessary,” which in turn depends on the reasonableness of employee’s choices.

Thus, the employer will probably not be obligated to reimburse employee for lavish or extravagant expenses such as five-star hotels, extravagant dinners, etc.

Under California Labor Code section 221, an employer may not take back any wages from an employee after they are earned. The statute provides: “It shall be unlawful for any employer to collect or receive from an employee any part of wages theretofore paid by said employer to said employee.” The labor code section 200 defines wages broadly to include “all amounts for labor performed by employees of every description, whether the amount is fixed or ascertained by the standard of time, task, piece, commission basis, or other method of calculation. The statute illustrated California’s strong public policy favoring the protection of employee’s wages.

Some employers and especially retailers have the “chargeback” policy under which the employees’ incentive that is to be paid, is charged back if the consumer of the products/services returns the purchased product to the store. It is important to note that such a policy is only valid and legal if agreed upon by an employee in writing. If the worker does not expressly agree to the chargeback policy in writing, it will likely be found to be unlawful.

Under California Labor Code section 510(a), all employees who work in excess of 40 hours in one workday or in excess of 8 hours per day must receive overtime pay. This provision, however, doesn’t apply to any employee “whose earnings exceed one and a half time of the minimum wage if more than half of that employee’s compensation represents commissions.” (California Code of Regulations, title 8, section 11040, subdivision 3(D)).

It is important to understand which compensation exactly is considered commissions for the purposes of the issue in question. A commission is a compensation paid for services rendered in the sale of property and services, and based proportionately upon the amount of the value of the services rendered. Under the Supreme Court definition, the compensation is commissions if (1) the employee receiving compensation is involved in selling a product or a service; (2) the amount of compensation in question is a percent of the price of the product or service.” (Ramirez v. Yosemite Water Co. (1999)).

Thus, if, for instance, the employer’s “bonus” or “incentive” pay does not depend on the volume of products/services sold by an employee, the overtime protections laws probably apply to that employee.

Under California law (California labor code section 501), an employer can authorize alternative workweeks of workdays exceeding eight hours without overtime pay if specified criteria are met. Such flexible scheduling requires full disclosure to affected employees and the affirmative vote of at least two-thirds of the employees in the affected workplace voting in a secret ballot election before performance of the week.

Any type of alternative schedule that is authorized by Cal. labor code section 501 may be repealed by the affected employees. An employer shall not reduce an employee’s regular rate of hourly pay as a result of the adoption repeal or nullification of an alternative week schedule.

However, the employer must pay overtime at one-and-a-half times the regular rate after 10 hours per day in a 40 hour workweek, and a double the regular rate after 12 hour per days and for any work in excess of eight hours on those days worked beyond the regularly scheduled alternative workweek days.

independent contractor in CaliforniaIn recent years, it has become increasingly popular for businesses to use the services of independent contractors for both short and long-term projects rather than to hire new career employees. Business can retain the services of independent contractors directly, or through a temporary employment agency.

The potential advantages of suing independent contractors include:

1. Cost savings from mandated contributions. The employer does not have to pay the usual employer contributions – state unemployment tax, social security tax or federal unemployment tax.