Healthcare and other aging services employers in California have been hit with a barrage of employee wage hour lawsuits in the last few years. Many good companies (large and small), caught off guard by technical labor law violations, have paid out seven figure settlements and, in some cases, closed their doors because of devastating class action litigation. The popularity of these lawsuits is explained by the recovery – even a small wage and pay practice violation can result in large damages when brought on behalf of all similarly situated employees. What’s more enticing are the attorney’s fees which are awarded no matter how large or small the individual or class recovery. Compliance errors such as missed meal periods or breaks, late breaks, failure to provide a second meal period on longer shifts, auto-deduction practices, failure to properly calculate or pay for sleep time, inaccurate wage statements, expense or mileage reimbursement mistakes, off-the-clock work, and exempt status misclassifications are ammunition for clever attorneys seeking to secure a lucrative representative action against large and small companies, non-profits, not-for-profits and public service organizations. No employer is immune from this epidemic!
California labor laws and courts have traditionally focused on protecting the rights of employees on wage and pay issues so there is often a presumption that the employer is in the wrong unless it can prove otherwise. There are, however, ways to avoid these unnecessary legal challenges. Here are the top five tips for protecting your company or organization from wage and hour practice disasters:
One: Implement and Revise Policies & Acknowledgments
Handbook policies that notify employees of the employer’s expectations regarding off-the-clock work and meal and rest periods provide a useful tool in defending wage claim litigation. For instance, time spent by non-exempt employees using their smart phones remotely for work-related email and text messages may be viewed as compensable time that must be recorded and paid for. Thus, notifying employees through a written policy about what is and is not permitted off hours is crucial. Many employers limit remote access to non-exempt employees. If access is allowed it is advisable to issue a clear policy that states smart phone use during off hours is only permitted with supervisory approval and must be recorded and reported immediately (i.e., within 72 hours). A statement that “off-the clock work is prohibited” is also recommended. Employers should additionally make sure that time cards and electronic recording programs contain language that allow employees to confirm that they have “recorded all time worked.” Finally, meal and rest period policies are now a necessity in employee handbooks. Courts have held post Brinker Restaurant Corporation v. Superior Court that class certification may be suitable in cases involving the lack of a policy or the existence of a noncompliant policy on “meal and rest periods.”
Two: Audit Meal/Rest Period Compliance and Pay Practices
California companies must provide non-exempt employees with a 30-minute meal period after no more than five hours of work, and a second meal break after no more than 10 hours of work (unless there is a waiver in place). Also, businesses must permit a 10-minute rest break for non-exempt employees who work at least 3.5 hours based on a specific schedule (i.e., one rest period for shifts of 3.5 hours to 6 hours; two rest breaks for shifts of more than 6 hours and up to 10 hours). Employers are often caught off-guard when they discover in litigation that certain employees were not provided lunches until the sixth hour and/or did not receive a second meal period, or that rest breaks were not consistently offered. Auditing time cards regarding meal period recording and correcting the way meal/rest periods are provided can help avoid “surprise” compliance issues. Periodic audits to determine if proper overtime is being paid and to assess appropriate exempt/non-exempt status is also highly recommended. In addition, California’s new Fair Pay Act was signed into law by the Governor on October 6, 2015 and becomes effective January 1, 2016. The Act amends California Labor Code section 1197.5, which prohibits discrimination in pay based on gender. The prior law required equal pay for equal work but the new law permits employees to show “substantially similar work when viewed as a composite of skill, effort, and responsibility.” Preventive measures include auditing employee pay practices to ensure pay is based on objective factors that can be justified – not just the job title of the individual, but for all employees doing similar work at all locations.
Three. Train Supervisors & Employees (and Document!)
Provide periodic education to supervisors (and employees) on the organization’s wage policies and procedures (and enforcement expectations) and keep track of the company’s efforts. For instance, if training on meal and rest periods is provided at a monthly staff meeting, keep copies of any agendas referencing the topic and retain sign-in sheets of employee attendance. This may help prove a valuable defense or avoid issues down the road.
Four. Identify a Wage & Hour “Compliance Person”
Busy supervisors can become complacent with enforcing company rules on wage and hour requirements. Too many HR professionals confess they simply cannot get supervisors and managers to “buy in” to the myriad of wage compliance obligations that must be implemented with employees. One way to avoid this continual conflict and still try to protect the organization from wage violations is to either hire or identify a specific individual whose job title or duties include wage and hour compliance. This employee’s job would include developing and implementing the necessary controls to make wage and pay practice compliance a priority for the organization.
Five. Review and Correct Wage Statements Pursuant to Labor Code 226
The easiest thing employers can do right now, today, to help avoid wage violations is review their pay stubs for compliance with the Labor Code. Section 226(a) sets forth specific categories of information that each wage statement must contain or which the employee must be able to promptly and easily determine from the wage statement alone. HR or payroll personnel should review wage statements to be certain this information is properly set forth on the stub:
(a) the amount of gross wages and net wages earned during the pay period;
(b) the total number of hours worked (if the employee is not exempt);
(c) the number of piece-rate units earned and the applicable piece rate (for an employee paid on a piece rate);
(d) any and all deductions made;
(e) inclusive dates of the period for which the employee is paid (not just the pay period ending date!);
(f) all applicable hourly rates in effect and the number of hours worked at each rate;
(g) the name and address of the “legal entity” that is the employer;
(h) the name of the employee and either the last four digits of the employee’s social security number or an employee ID number.
Until 2013, employers often defended against section 226 penalty claims by arguing that the employee had suffered no injury as a result of a technically incomplete or inaccurate wage statement. In January 2013, section 226 was amended to state that an employee is “deemed to suffer injury” if a wage statement fails to include each of the items specified by the code section. As a result, penalties for inaccurate or incomplete wage statements have become essentially automatic – driving litigation in this area through the roof! Do not assume that because your organization uses a large payroll service that the company’s wage statements are accurate. Too many employers have been shocked to discover, after being sued in a representative capacity, that a category was technically deficient (i.e., listing a company dba instead of the legal entity, failing to include the pay period ending date, omitting an employee ID) subjecting them to compounding penalties. Review and correct these minor errors now to avoid large liability later. [Note: On October 2, 2015, in response to increasing frivolous litigation regarding technical violations that do not harm or injure the employee, Governor Brown signed urgency legislation (AB 1506) that gives employers the right to “cure” certain alleged wage statement violations brought under Labor Code 226(a). However, the law has limited application to only the inclusive dates of the pay period and the name and address of the employer. It also requires, among other things, issuing “fully compliant, itemized wage statement(s) to each aggrieved employee for each pay period for the three years prior to the date of written notice” sent to the Labor Workforce Development Agency. Thus, the law does not alleviate an employer’s obligation to provide all the information required on an employee’s wage statement.]