A friend of mine runs a large retail chain store with about 20 stores in California.   Each of their stores has a manager and several assistant managers.   He pays his assistant managers by the hour and gives them overtime pay for all hours over 8 per day or over 40 per week as required.  But, he pays his store managers a set salary and does not provide them with any overtime pay.   He asked me if he should convert his mangers to hourly pay to avoid a potential overtime suit.   Here is my answer: 

The terms of the exemption for your store managers are set forth below.  If your managers clearly fit, then you can keep them as salaried employees.   However, if there is any doubt that all of your managers clearly fit this exemption, then you risk a wage and hour suit and if one person sues – the odds are that it will be a class action.  Or, under California’s new Public Attorney General Act, a single person can sue for wage and hour violations on behalf of all other employees without even making it a class action.   It is now easier than ever for a single employee to cause a big problem – so make sure you follow the wage an hour rules.   Be conservative.  If you have any doubt, error on the side of assuming that your employees are not exempt.

Even if you are correct that your managers are exempt and you win in court – you still lose because you will have to pay some law firm a lot just to win.   So avoid litigation – be every up front and open and err on the side of compliance.  If an employee ever complains, take it very seriously and keep the employee informed at all times and clearly explain what you are doing.   If you are wrong, admit it to the employee and pay them for the error.  

California Executive Exemption:
The California Executive Exemption applies to employees who spend over half their work time managing businesses or departments of a business. CA labor law on executive exemptions requires that the following occur to meet the tests for the CA Executive Exemption.

1. Manage the entire company or department or subdivision.
2. Direct the work of at least 2 subordinates in your department or division.
3. Have the power/authority to hire or fire – either directly or indirectly.
4. Exercise independent business judgment.
5. Spend more than 50% of your time doing the above tasks.
6. Be paid at least $640 per week (as of this writing).

Being paid a salary has no bearing at all on your right to receive overtime pay.   Rather, the nature of your work is really all that matters. A salaried employee must be paid overtime unless they meet the test for exempt status as defined by federal and state laws, or unless they are specifically exempted from overtime by the provisions of one of the Industrial Welfare Commission Wage Orders regulating wages, hours and working conditions.

People call and ask this question all of the time.  We always tell them that yes, your employer does have to pay you overtime even if your company did not approve it.

Here is the formal answer to this question provided by the California Department of Labor.

Yes, California law requires that employers pay overtime, whether authorized or not, at the rate of one and one-half times the employee's regular rate of pay for all hours worked in excess of eight up to an including 12 hours in any workday, and for the first eight hours of work on the seventh consecutive day of work in a workweek, and double the employee's regular rate of pay for all hours worked in excess of 12 in any workday and for all hours worked in excess of eight on the seventh consecutive day of work in a workweek.

An employer can discipline an employee if he or she violates the employer's policy of working overtime without the required authorization. However, California's wage and hour laws require that the employee be compensated for any hours he or she is "suffered or permitted to work, whether or not required to do so." California case law holds that "suffer or permit" means work the employer knew or should have known about. Thus, an employee cannot deliberately prevent the employer from obtaining knowledge of the unauthorized overtime worked, and come back later to claim recovery. The employer must have the opportunity to obey the law.

• Deductions that are required of the employer by federal or state law, such as income taxes or garnishments.
• Deductions expressly authorized in writing by the employee to cover insurance premiums, hospital or medical dues or other deductions not amounting to a rebate or deduction from the wage paid to the employee.
• Deductions authorized by a collective bargaining or wage agreement, specifically to cover health and welfare or pension payments.

Most any other kind of deduction from your pay would violate the Labor Code.  

1. Gratuities.  An employer cannot collect, take, or receive any gratuity or part thereof given or left for an employee, or deduct any amount from wages due an employee on account of a gratuity given or left for an employee.  Labor Code Section 351  However, a restaurant may have a policy allowing for tip pooling/sharing among employees who provide direct table service to customers.
   
2. Photographs.  If an employer requires a photograph of an applicant or employee, the employer must pay the cost of the photograph. Labor Code Section 401
   
3. Bond.  If an employer requires a bond of an applicant or employee, the employer must pay the cost of the bond. Labor Code Section 401
   
4. Uniforms.  If an employer requires that an employee wear a uniform, the employer must pay the cost of the uniform. Labor Code Section 2802, Industrial Welfare Commission Orders, Section 9.  The term "uniform" includes wearing apparel and accessories of distinctive design and color.
   
5. Business Expenses.  An employee is entitled to be reimbursed by his or her employer for all expenses or losses incurred in the direct consequence of the discharge of the employee’s work duties. Labor Code Section 2802
   
6. Medical or Physical Examinations.  An employer may not withhold or deduct from the wages of any employee or require any prospective employee or applicant for employment to pay for any pre-employment medical or physical examination taken as a condition of employment, nor may an employer withhold or deduct from the wages of any employee, or require any employee to pay for any medical or physical examination required by any federal or state law or regulation, or local ordinance. Labor Code Section 222.5

First, the independent contractor label is usually good for the company and bad for the person.  The company saves money because Independent contractors are not entitled to receive any benefits such as health insurance.  This is a huge savings for companies.  

I write this post so people who are working as independent contractors can tell if they are being illegally deprived of benefits.  Here is an excerpt from the California Department of Industrial Relations that explains how they determine if someone is an independent contractor or an employee:

The most significant factor to be considered is whether the person to whom service is rendered (the employer or principal) has control or the right to control the worker both as to the work done and the manner and means in which it is performed. Additional factors that may be considered depending on the issue involved are:

1. Whether the person performing services is engaged in an occupation or business distinct from that of the principal;
2. Whether or not the work is a part of the regular business of the principal or alleged employer;
3. Whether the principal or the worker supplies the instrumentalities, tools, and the place for the person doing the work;
4. The alleged employee’s investment in the equipment or materials required by his or her task or his or her employment of helpers;
5. Whether the service rendered requires a special skill;
6. The kind of occupation, with reference to whether, in the locality, the work is usually done under the direction of the principal or by a specialist without supervision;
7. The alleged employee’s opportunity for profit or loss depending on his or her managerial skill;
8. The length of time for which the services are to be performed;
9. The degree of permanence of the working relationship;
10. The method of payment, whether by time or by the job; and
11. Whether or not the parties believe they are creating an employer-employee relationship may have some bearing on the question, but is not determinative since this is a question of law based on objective tests.

Even where there is an absence of control over work details, an employer-employee relationship will be found if (1) the principal retains pervasive control over the operation as a whole, (2) the worker’s duties are an integral part of the operation, and (3) the nature of the work makes detailed control unnecessary. (Yellow Cab Cooperative v. Workers Compensation Appeals Board (1991) 226 Cal.App.3d 1288)

Other points to remember in determining whether a worker is an employee or independent contractor are that the existence of a written agreement purporting to establish an independent contractor relationship is not determinative (Borello, Id.at 349), and the fact that a worker is issued a 1099 form rather than a W-2 form is also not determinative with respect to independent contractor status. (Toyota Motor Sales v. Superior Court (1990) 220 Cal.App.3d 864, 877).

The overtime laws do not care about titles or rank or if you are paid by a salary.  Your right to overtime pay is based entirely on the work you do – labels and method of pay are not important. 

A good example of the label game is the so called “manager” or “assistant manager.”   Someone who is truly a manager is not entitled to overtime pay.   But you are not a manager unless you spend at 50% of your time actually managing other people.   Many managers only spend a small fraction of their time managing and instead spend most of their time doing other work.   A large retail chain was recently caught misclassifying its managers.  It had to pay millions in overtime to their store managers because the managers only spent 20-30% of their time managing and spent the other 70% of their time stocking shelves, sweeping floors and doing other retail work.  

Another good example of the label game is a company that had a staff of “engineers.”   None these “engineers” had engineering degrees and none of them had even graduated from college.   Rather, these engineers did technical work and design on pumps and other mechanical products.   The company did not pay its engineers overtime pay because they were misclassified as professional employees.   Certain professionals such as lawyers, doctors, highly trained or educated scientists or the like are exempt from overtime.   But these so called '”engineers” were not exempt because they were not highly educated or trained and therefore they had the right to overtime pay. 

Federal law is much different.   Under the Fair Labor Standards Act (the federal law), overtime is calculated on a weekly basis. Under federal law, a person is entitled to overtime for each hour worked over 40 in a work week.   A person might work 12 hours on a given work day and not be entitled to any overtime so long as that person works less than 40 hours during that work week.  

California employees, however, need not worry about the federal law because that does not apply to them.   Instead, the California daily basis test applies to them instead of the federal weekly basis test.  The bottom line is that California employees are entitled to overtime pay for each hour worked over 8 hours in a given work day – regardless of how many hours they work during the week.  

Today a person called our firm to see if he she was entitled to be reimbursed for the expenses she incurs on the road.    The caller, lets call her Jane, works for a large television station as a sales woman.   She travels throughout California selling advertising.   She is paid a commission for her sales.

Jane often drives her own car on her sales trips and has to pay for her own gas, hotels, calls, meals and every other expense that she incurs in connection with her employment.   Her company never reimburses her for these expenses.  Jane called our law firm today to see if she had the right to be reimbursed for the expenses. At our firm, we frequently get calls from sales people asking similar questions. 

The simple answer is yes, a company must reimburse employees for all NECESSARY expenses they incur as a direct consequence of doing their job.   This is required by California Labor Code Section 2802.  This right cannot be waived by agreement.  Under certain circumstances, a company can attempt to reimburse an employee for these expenses by increasing the salary or commission but only if there is a clear method of apportioning the amount used to reimburse expenses.  

We agreed to help Jane recover her expenses and hopefully Jane will soon receive a check to cover all of those past expenses.  

I just read the FSLA a few times trying to get to the source of a legal issue.   I read a bunch of cases on it and articles and a treatise   Frankly, what were they all smoking?  I cannot find support in the text for much of what they say.  The FSLA is cryptic.  You need to read it like you are staring at the Mona Lisa and try to understand the hidden meaning of subtle signs.   Like the Mona Lisa, it can mean something different to everyone who looks at it. Who knows what the authors really meant.  It is not clear.  Maybe all the judges and writers who have interpreted the FSLA know someone who was there when it was enacted so long ago.   If you take the time to read the FSLA, there is only one thing to take away from it.   It needs to be re-written.  Until then, lawyers will have a blast because its vagueness is an invitation to argue.

That case is pending before the U.S. Supreme Court and it involves a man who was fired shortly after his fiancee filed an EEOC charge against their common employer.   The Court will decide if the anti-retaliation provisions of Title VII extend to third-parties.     Thanks to Ross Runkel at the Law Memo for reporting this development. 

A company is free to make hour-for-hour deductions from accrued leave for partial day absences by exempt employees without violating the salary basis test.   But they cannot make partial day deductions from salary.

For anyone who is not familiar with the nuances of California overtime law, the salary basis test requires employers to pay salaried employees a set rate for each day worked.  If an employer makes salary deductions for sick time, the employer risks losing the overtime exemption not only for that employee, but all other salaried employees as well.   This new opinion by the Labor Commissioner gives companies more leeway to make deductions from accrued leave for sick time, but partial-day salary reductions are still prohibited. 

Before going to law school, I spent summers working on a construction crew and I worked a lot of overtime.  But I was never paid a nickel in overtime.  Legally, I was entitled to overtime pay.  Legally, most people are also entitled to overtime pay.   Realistically, most people don’t get paid overtime even though they should. 

How can this be stopped?  

Since I run an employment law firm that handles overtime cases, I think that you should call my law firm.  But, you do have several options.   Basically, there are two ways to enforce your overtime rights – call the government or call a law firm.   Either one can help you.  

The California Department of Industrial Relations, Wage and Hour section, enforces the overtime laws.   Employees can file a wage claim by clicking here.  You can read the Department’s frequently asked questions also.   Or click here to find your local office to get more information in person. 

Another option is to contact a law firm that focuses on overtime cases.  A good resource for finding quality law firms that practice employment law is the National Employment Lawyers Association.   Many of these law firms handle overtime cases.  You can find a list of member law firms in your area by clicking here. 

Overtime pay does exist in California.  But, often, employers have to be “encouraged” to pay it by filing a claim with the government or through a law firm. 

In  Whalen v. J.P. Morgan Chase & Co., the Second Circuit set out guidelines to help identify the jobs  that fit into the administrative exemption under the FSLA.     Employees who are deemed administrative are not entitled to overtime pay under the FSLA and California law.  The focus of the inquiry is to identify the factors that distinguish “production” work from “administrative.”  The driving factor is the nature of the employee’s duties.   Production employees are those who work on the day to day, routine activities that are directly related to the output or product of the organization.  Administrative employees, on the other hand, are not focused on the product or service provided by the organization, but work on running the business itself.   Human resources associates, for example, are administrative employees because their work is focused on running the company and not on producing the product or service of the company.   Likewise, advertising associates or accountants within a company are administrative employees because their work is focused on the operation of the company, not its product or service.  In Whalen, the plaintiffs were loan underwriters for a bank that provided loans.   Since the plaintiffs were directly involved with producing the companies produce (loans) they were deemed to be production oriented and not administrative and therefore entitled to overtime pay.     

The real issue is how will law firms operate with alternate fees.  Alternate fee pricing will completely change the way law firms operate.  In order to survive, efficiency will be the driver, not hours.   The old ethos of making money by spending lots of time on matters is dead.  Some of the fundamental assumptions about law firms need to be challenged.   Here are some of the issues:

- Does it makes sense for law firms to have large Park Avenue offices?

- How will law firms transform themselves into efficient high value operators?

- Is this the start of the "walmarting" of the legal industry in which the lowest cost provider of quality services will triumph? 

Some are saying that the profession is about to undergo a major change.  People have been saying that for a while and it has not really happened.  But, in my view, the profession should change.  It really has not been efficient.  Only the very wealthy can generally afford quality legal services.  Maybe that is about to change. 

Our firm has been using contingency fees for a decade and we have been using blends of flat fees and contingency fees for the past few years - mostly when we represented plaintiffs.  We are used to taking risks and only getting paid if we win.  Now, we are shifting our focus to representing companies - defending them in employment discrimination cases and we are trying to adapt our flat fee approach to these cases.  Clients not only like it, they are demanding it.  The key is aligning the interests of the client and the law firm.   Not always easy to do.   Takes some creative thinking and risk tolerance.  

The Company argued that Ms. Scherl's pregnancy was not a factor in her termination.  Instead the Company claimed that she was simply part of a company wide reduction in force.  But the Court did not believe this argument because when the company was in need of new employees, it did not ask Ms. Scherl to return and instead hired other less experienced people.   

This is a great result for pregnant employees.   At our firm, we find that a lot of pregnant woman are caught up in reductions in force.  The companies always argue that pregnancy was not a factor and often are unwilling to settle.   But this case shows that a close look at the facts can get past the "reduction in force" defense.  Click here to see a short video of a typical pregnancy discrimination case. 

They key point is that employees do have a right to privacy, but that right can be compromised if the company has a legitimate reason.    Also, companies should notify employees of potential monitoring in the company policy manual or other posting locations.   But, if a company does not notify employees of the monitoring and does not have a good reason, then employees may be able to sue the company for invasion of privacy. 

For a thorough review of Hernandez from an employer's perspective, see the Labor Employment Blog by Sheppard Mullin.