The Friday report by the local legal paper of settlements in employment matters is sobering. Every week brings reports of ten or more 6 or 7 (sometimes 8) figure settlements of wage and hour actions against California employers. Many such settlements are paid by smaller or medium-sized employers, not just the Fortune 500.
California’s complex employment laws are filled with pitfalls for even the best-intentioned employer. The availability of both class actions and Private Attorneys General Act procedures (PAGA) gives the plaintiffs’ bar powerful weapons to use in extracting painful settlements. From our experience, the most common and troublesome claims fall into a few discrete categories.
Meal Periods. Meal break issues seem to be the most common predicates for class/PAGA claims and potentially the most expensive to resolve. California law requires that all nonexempt employees be provided an unpaid, minimum 30-minute uninterrupted meal break starting no later than the end of the fifth hour of work (and a second meal period if the employee works more than ten hours in a day). Failing to provide the necessary meal break requires the employer to pay an additional one hour’s pay at the employee’s regular rate.
“Providing” a meal break does not mean forcing employees to take a break. But the devil is in the details. When an employee’s legally-required time records show no meal break taken on some days, or breaks of less than 30-minutes, or that start after five hours of work, the employer typically bears the burden of proving the employee voluntarily chose not to take a compliant break. That can be difficult since claims theoretically can date back four years, or more. It is especially challenging (and potentially expensive) when no missed meal period premium was paid.
These risks can be reduced. A carefully drafted meal/rest break policy is essential. Thorough recordkeeping also is critical, but often overlooked. The reasons for any missed/short/late meal break should be contemporaneously documented, ideally in certifications signed by the employee. Likewise, if time records are edited by a manager for any reason, the supporting reasons for the edit should likewise be documented. These records can be important evidence in negating claims. More importantly, they may provide a defense to any potential class certification motion by showing that individual issues predominate. A strong possibility of defeating such a motion often reduces a future case’s settlement value.
Overtime Pay Calculation. California law requires overtime pay for nonexempt employees who work more than eight hours a day or forty hours in a workweek. Hourly overtime pay is one and a half times the employee’s “regular rate” (twice the regular rate under certain conditions). Regular rate does not mean the employee’s stated hourly pay rate, however, since other compensation often must be included in and increase the regular rate for overtime purposes. These additions include nondiscretionary bonuses, incentives, rewards for meeting specific objectives, and many other payments tied to the employee’s work. Failing to calculate the regular rate correctly can result in liability for both additional pay and penalties.
Incorrect Employee Classification. Exemptions from overtime and other requirements under California law are considerably narrower than under Fair Labor Standards Act rules. Casually designating a highly paid salaried employee as “exempt” can produce serious liability. Similarly, California standards determining who is/is not a valid independent contractor have become more restrictive in recent years. Misclassifying an employee can result in large penalties far beyond sums potentially payable to an individual employee.
Off-the-Clock Work. Employees bringing wage and hour claims often include a claim that they were required to work off the clock but not paid for the work. Those claims often include assertions that employees were asked to work before or after clocking in or out, or while on their theoretically unpaid meal break. More creative plaintiff’s counsel assert claims based on employees’ need to review and respond to emails or texts after hours, or time spent by remote workers on unpaid activities such as booting up their computers before clocking in.
Delayed/Incorrect Final Wages. California law requires full payment at employment termination of all earned wages on pain of a continuing wage penalty of up to thirty working days’ pay. Those wages can include such things as unpaid missed meal/rest break premiums, unpaid or incorrectly calculated overtime pay, vested/prorated vacation, and multiple other items. Employers who do not take great care to assure that everything due is paid can incur multiple layers of penalties.
Of course, many other areas present potential liability for employers: mismanaging leaves/accommodation requests; conducting terminations that can be portrayed as a retaliatory response to employee requests/complaints; failing to comply with multiple overlapping and cumulative requirements in recruiting and hiring; poorly managing and documenting terminations; and other possible shortcomings.
So, what else can an employer do?
Consider Using Employee File Requests Proactively. Most employers of any size have had the experience of responding to statutory requests by lawyers representing former employees for production of time and pay records and personnel files. Getting such a request means that the employer is already targeted for a potential legal claim. Many employers, however, treat the response as a mundane administrative task.
The employee file production process can present an opportunity to persuade and deter. Opportunities include adding to the production policies helpful in negating potential liability (such as a thoroughly compliant meal and break policy); delving more deeply into emails and company materials for material showing that the employee would be a vulnerable litigant; and other material prospectively supporting the employer’s defense. Although providing too much has risks, in some cases the persuasive effect of the production may chill a lawyer’s enthusiasm for targeting the employer.
