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California Employment Law
An Employer's Guide
By James J. McDonald Jr.
Society For Human Resource ManagementCopyright © 2016 James J. McDonald, Jr.
All rights reserved.
California Employment Law: How Did This Become So Difficult?
It is often said that it is impossible for an employer to fully comply with all of California's employment laws. They are just too numerous and too complicated. They are frequently changing, and rarely for the better. There are so many traps for the unwary. Unfortunately, this is mostly true.
1.1 Why California Employment Laws Are So Difficult
Part of the problem is that California deems itself to be special. All the employment laws that serve the rest of the country just fine, such as Title VII of the Civil Rights Act, the Fair Labor Standards Act, and the Americans with Disabilities Act, are not considered adequate for California. Instead, California has its own versions of these laws — its own Labor Code, its own Fair Employment and Housing Act, and its own bureaucracies to enforce these laws. Sometimes these agencies interpret California law consistently with similar federal laws, sometimes not, and sometimes it is not really clear. California's wage and hour laws are among the most difficult to follow. Many of them were written by a body called the Industrial Welfare Commission, which no longer exists. In some instances they are enforced by the Division of Labor Standards Enforcement (aka the Labor Commissioner, or what many call the "Labor Board"). That agency has written a lengthy Enforcement Policies and Interpretations Manual that contains some useful hints on what the laws mean, but courts routinely refuse to follow it because it was never subjected to public notice and comment. The same goes for the opinion letters the Labor Commissioner issues occasionally. The courts' refusal is sometimes a good thing because the agency's positions are often not employer-friendly, but it leaves many employers scratching their heads as they try to figure out which interpretation of often-ambiguous laws they should follow.
Another part of the problem is the Private Attorneys General Act (PAGA). Enacted in 2004 because the legislature felt the Labor Commissioner lacked the resources to fully enforce California's wage and hour laws, the law deputized disgruntled employees and their lawyers as bounty hunters to extract penalties from unwary employers for violating obscure laws, some dating back to the 1800s. The penalties are supposed to be shared with the state, but no similar split is required for the attorneys' fees recovered, so PAGA lawsuits have become lucrative ventures for the plaintiffs' bar and an expensive headache for employers.
Unpredictable court decisions are part of the problem too. Clever lawyering by plaintiffs' attorneys and sympathetic judges occasionally produce abrupt changes in the way California's employment laws are interpreted. Court decisions finding that piece-rate workers must be paid at least minimum wage for the time they are not doing piece-rate work, and rejecting the long-applied (and common-sense) rule that employees need not be paid for the time they spend sleeping, are two examples. These decisions impose substantial retroactive liability on employers because they are premised on the notion that employers should have been complying with the new interpretation of the law all along.
Another part of the problem is that California has a full-time legislature. In states with part-time legislatures, legislators typically run businesses or work in jobs when the legislature is not in session, so they have some passing familiarity with the real world of work. California's legislators are not burdened with such distractions, so they stay busy churning out new laws. Many of these laws affect the workplace and make managing employees within the law that much more difficult. Recent examples include a law protecting undocumented immigrants who present fake documents to become employed and then present real ones later, and a law awarding an extra hour of pay to workers who work outside and can claim they did not get to spend enough time resting in the shade. It is almost as if every time somebody in the legislature says, "Hey, I have an idea!" it becomes law because employers have so little leverage in Sacramento. The premise behind most of these laws is that employees are commonly abused by bad employers and need ever more protections. So the legislature passes yet another law, which may or may not overlap previously enacted laws addressing the same evil. It is true there are some unscrupulous employers, but few in state government seem to heed the effect that this ever-thickening web of laws has on the vast majority of employers that are doing their best to comply.
1.2 Which Law?
Both federal and California law applies to California employers, but which law applies is not a difficult question. Whichever law is most favorable to employees is the law that applies. Ordinarily that will be California law but not always. Regardless, this book will address the law that is usually applicable without specifically identifying it as state or federal unless the distinction is important.
1.3 The Cost of Getting It Wrong
The stakes are high for California employers. A simple mistake can lead to a seven-figure jury verdict or a class action lawsuit.
One reason for this is that under California law, unlike under federal law, there are no limits on the amount of emotional distress damages and punitive damages that may be recovered in most employment lawsuits. There is no rational explanation for this beyond the influence of the plaintiffs' bar on the legislature. Is it really more traumatic to lose a job in California than in Indiana? The lack of damage limits often leads to outsized jury verdicts that courts are not likely to reduce except in extreme cases. When juries side with plaintiffs in employment cases, they often decide to make them millionaires — with the employer's money, of course.
California's overlapping laws are another reason employment lawsuits are more expensive in California. For example, let's say you terminate an employee who has been out on a medical leave for a long time and does not appear likely to return. You will probably be sued, not once but five times over, for: (a) disability discrimination, (b) failure to provide a reasonable accommodation, (c) failure to undertake the interactive process of accommodation, (d) failure to prevent discrimination, and (e) wrongful termination in violation of public policy. Each of these causes of action addresses the same termination decision, but they give a jury five separate grounds for awarding damages.
Numerous overlapping laws often apply in the wage and hour context as well. Suppose you pay your employees on a piece-rate basis, which is perfectly legal under federal law, and they earn well in excess of the minimum wage for all the hours they work. In California such a method of paying employees is illegal, however, if employees spend any part of their workdays not actually producing piece work. Virtually all piece-rate employees have down-time, such as training time, time spent waiting for a new assignment, and paid rest breaks. California courts have decided that these employees must be paid separately and at least minimum wage for these intervals in which they are not producing piece work. Dividing their total earnings by hours worked, as is done under federal law, will not suffice. Thus, almost every employer that has paid employees on a piece-rate basis has been (or is being) sued, but not just for unpaid minimum wage. Employees can also recover "liquidated damages" equaling the amount of unpaid minimum wage, plus interest and attorneys' fees. Former employees may also recover 30 days of pay as a "waiting time penalty" for not being paid all wages due when their employment terminated. In most wage and hour lawsuits, moreover, additional penalties are recoverable under PAGA.
Because wage and hour violations typically affect many employees, lawsuits for these violations are usually brought as class actions with the exposure for a particular error multiplied by the number of employees in the class. Class actions are a thriving industry in California. They started in the employment context with alleging that retail and restaurant managers were misclassified as exempt from overtime. Eventually most employers, some having been sued multiple times, properly classified their employees, so the class action lawyers moved on to attack missed meal and rest breaks. Then inaccurate paystubs became the focus, then piece-rate employees, and so on. As soon as employers get their houses in order with respect to one law, the class action lawyers switch their focus to another.
Even absent a class action lawsuit, simple mistakes can be costly. Say you have an employee who earns $52,000 annually. She quits her job, and when you calculate her accrued vacation due at termination, you erroneously undercalculate the amount due by a half day. That half day of vacation is worth $100. Suppose the former employee files a claim with the Labor Commissioner for unpaid vacation. She will likely be awarded the $100 plus $6,000 in waiting time penalties — $200 per day for each of the days (to a maximum of 30) that she had to wait to receive her $100.
1.4 This Book's Purpose and Approach
This book is written for those who must contend with employment law in California as part of their work. It is written primarily for business people and HR professionals, not lawyers, although in-house counsel and lawyers who practice outside of employment law will find it useful. The book's approach is practical. There is no lengthy analysis of court decisions, and there are no footnotes. This book is grounded in the law as it is found in statutes, regulations, and case law, but its focus is on how the law works in the real world.
This book is written from the perspective of a lawyer who has spent a career advising employers, so it has a point of view. The purpose of this book is to help those who must deal with California employment law understand it better, but this book does not provide legal advice. Most of the time the right legal answer depends on the facts of a specific situation. Although this book will provide you with an overview of the law, it is not the substitute for competent advice from a lawyer who is knowledgeable about your business and is fully apprised of the facts of a particular situation.CHAPTER 2
Employment at Will: What It Really Means
California's Labor Code contains a presumption that employees are employed at will. This means that either the employer or the employee may terminate employment at any time, with or without cause or prior notice. This is important for employers because "cause" is defined under California law as "a fair and honest cause or reason, regulated by good faith on the part of the employer." Employers would be significantly burdened if they had to prove to a court or jury that they acted "fairly" and "in good faith" in every employee termination.
2.1 Exceptions to Employment at Will
Exceptions to employment at will include:
Public-sector employees, most of whom are protected by civil service laws and/or by a "memorandum of understanding" between their union and the agency that addresses discipline and termination.
Employees represented by unions and covered by a collective bargaining agreement that contains a "just cause" standard for termination.
Employees (usually executives) who have written employment contracts requiring "good cause" for termination.
Employees whose employers have said or done things that overcome the presumption of employment at will.
Courts in some cases have found that employer policies or statements of managers have overcome the presumption of employment at will, such that an implied contract to be terminated only for good cause arose. One such policy is a rigid "progressive discipline" policy under which employees cannot be fired until a series of prior warnings and lesser sanctions have been imposed. Managers' assurances of secure or long-term employment might also be found to overcome the presumption of employment at will in some circumstances.
2.2 Reinforcing Employment at Will
California courts will not find employer policies and manager statements to overcome the presumption of employment at will when an employee has signed an express employment-at-will acknowledgment. To retain the freedom to terminate employment without cause that employment at will affords you, therefore, you should do everything you can do to preserve employment at will. This means:
Include an employment-at-will statement on the employment application and in offer letters so that a prospective employee understands, before leaving another job or moving from out of state, that the new job will be employment at will.
Have new hires sign an employment-at-will acknowledgment on their first day.
Include an employment-at-will statement in the employee handbook.
Avoid rigid progressive discipline policies, and instead say that conduct violations "may lead to disciplinary action up to and including termination of employment."
Train managers and supervisors not to make careless assurances of job security during job interviews or in response to questions from employees or applicants.
When presented with an employment verification form in connection with a mortgage application, do not respond to questions asking about the employee's prospects for future employment.
Model Employment-at-Will Statement
"I acknowledge that my employment is at will and for no specific duration. Either I or the company may terminate my employment at any time, with or without cause or prior notice. My employment-at-will status cannot be changed except in a writing signed by the president of the company."
2.3 The NLRB and Employment at Will
The National Labor Relations Board (NLRB) is vigilant regarding employer policies that may tend to interfere with employees' exercise of their right to engage in concerted activity for mutual aid and protection under Section 7 of the National Labor Relations Act (see Section 19.2 in this book). In one case, an NLRB judge found unlawful an employment-at-will statement that said that it could never be changed. The judge found fault with this statement because employees have the right to decide to be represented by a union, and most union labor agreements contain a clause requiring just cause for termination. In another case, however, the NLRB approved of an employment-at-will provision stating that it could be changed only in writing by the president of the company, noting that this language did not foreclose employees choosing to be represented by a union and having a collective bargaining agreement with a just cause termination standard that would be signed by the president of the company.
It is not clear how far the NLRB will go in scrutinizing employment-at-will provisions. For now, employers should heed the agency's concerns by including language stating that employment at will cannot be changed except in a writing signed by the company president (or similar official).
2.4 Employment at Will versus "Right to Work"
Sometimes employment at will is confused with the "right to work." They are different concepts, however. In states with right to work laws, union-represented employees cannot be forced to pay union dues or fees as a condition of employment. California is not a right to work state, so the term has no significance in California employment law.
2.5 The Limits of Employment at Will
Employment at will simply means that an employer cannot be sued for breach of an implied contract requiring a showing of good cause for termination. It does not mean that an employer may not be sued for other employment wrongs, such as discrimination, retaliation, violations of specific statutes (including those protecting whistle-blowers or employees who take family or medical leave) or for terminations that violate public policies set forth in statutes or regulations.
Employers should do everything they can to preserve employment at will. It is not a good idea, though, to tell an employee only that "we are exercising our employment-at-will rights and terminating you." Because there are so many other grounds for employee lawsuits, you should still be sure to document the reasons for terminating an employee. This includes providing prior warnings, when appropriate, for poor job performance and less serious types of misconduct such as attendance policy violations. These warnings should not be given pursuant to a formal progressive discipline policy but rather simply to establish that misconduct or performance issues occurred and that the employee was put on notice of them, to rebut a later claim that the termination was motivated by an unlawful reason such as discrimination or retaliation.
Excerpted from California Employment Law by James J. McDonald Jr.. Copyright © 2016 James J. McDonald, Jr.. Excerpted by permission of Society For Human Resource Management.
All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.
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Table of Contents
Chapter 1. California Employment Law: How Did This Become So Difficult?,
Chapter 2. Employment at Will: What It Really Means,
Chapter 3. Arbitration of Employment Disputes,
Chapter 4. Employee Handbooks,
Chapter 5. Employees or Independent Contractors?,
Chapter 6. The Hiring Process,
Chapter 7. Paying Employees Correctly,
Chapter 8. Overtime,
Chapter 9. Meals, Breaks, Pants, and Seats: Other Rights of Employees,
Chapter 10. Employee Privacy Rights,
Chapter 11. Protecting Trade Secrets,
Chapter 12. Employment Discrimination,
Chapter 13. Harassment,
Chapter 14. Accommodating Employees with Disabilities,
Chapter 15. Leaves of Absence,
Chapter 16. Conducting Workplace Investigations,
Chapter 17. Avoiding Retaliation Claims,
Chapter 18. Rightful Terminations,
Chapter 19. Unions and Labor Relations,
Appendix of Cited Cases,
About the Author,
Additional SHRM-Published Books,