Top Ten Items Out-Of-State Employers Need To Know About California’s Unique Labor Laws

• Posted by Geoffrey G. Gussis on June 28th, 2006


• Filed in Employment Law

Many thanks and a tip of the hat to Anthony J. Zaller
and Brian F. Van Vleck of Carlton, DiSante &
Freudenberger LLP for providing InhouseBlog with an informative article on California’s unique labor laws. Don’t forget to check out their California Labor Law Blog! Blog address:
www.callaborlaw.com

California
employment law bears a deceptive resemblance to familiar federal laws
like Title VII, the Family and Medical Leave Act (“FMLA”), and
the Fair Labor Standard Act (FLSA). But the superficial similarity
of these laws can lull out-of-state employers into believing that
their existing policies are “close enough” to ensure compliance
with California employment laws. The following is a list of what are
probably the “top ten” costliest problems that out-of-state
employers need to know about California’s unique employment laws.

1. Meal and Rest Period Penalties

This is the current
favorite claim of plaintiff’s class action attorneys in California.
A 2001 statute imposes substantial penalties on employers who do not
comply with very technical regulations concerning the timing and
duration of employee lunch and rest breaks. In general, employees
must receive a 30-minute meal break (during which they must be
relieved of all duty and be free to leave the premises) before they
complete 5 hours of work if their shift will be longer than 6 hours
for the day. Employees are entitled to a second meal break whenever
their shift will be longer than twelve hours. And employees are also
entitled to take paid rest periods of at least 10-minutes for every
four hours of work, taken as close to the middle of each work period
as possible. The aggregate liability that can result over time was
apply demonstrated by a 2005 jury verdict in a meal and rest break
class action against Wal-Mart that awarded over $192 million in
penalties and punitive damages.

2. California
   Overtime Exemptions Are Based on “Counting Hours” Test.

Like the FLSA,
California law provides that various job categories are exempt from
overtime, including outside salespeople, commissioned salespeople and
“white collar” employees. Employers have often defined positions
on a nation-wide basis as salaried or hourly based on the definitions
of exempt duties provided by the FLSA and its implementing
regulations. California law, however, frequently rejects these
federal rules in favor of its own, narrower definition of exempt
duties. For example, under federal law, a position may be exempt
from overtime where its “primary,” or most important job
functions are exempt. In California, by contrast, the duties test is
strictly quantitative — i.e., “does the employee spend more
than 50% of his or her time performing exempt duties?” If not, the
position may be misclassified and substantial back overtime may be
due.

3. Daily
   Overtime and Double-Time.

Virtually all
employers know that the FLSA requires payment of “time-and-one-half”
premium pay for all hours worked beyond 40 hours in one workweek. But a surprisingly large number of employers who set up shop in
California are ignorant of the fact that California also
requires “time-and-a-half” overtime for all hours worked beyond
eight in a single workday and for the first eight hours worked on the
seventh consecutive day worked in a workweek. Unlike, the FLSA,
California also requires overtime at a double-time rate
for all hours worked beyond 12 hours in a single workday and for
hours worked beyond eight on the seventh consecutive day worked in a
single week.

4. Mandatory Sexual Harassment
   Training for Supervisors

California law
requires employers with 50 or more employees to provide two hours of
sexual harassment training to all supervisors once every two years. Regulations are currently being proposed to clarify the extent to
which this obligation applies to supervisors who are located outside
California, but supervise California employees and other issues
raised by the requirement.

5. No “Use-It-Or-Lose-It”
   Vacation Policy

California treats
earned, but unused vacation time, as a form of vested compensation,
which cannot be forfeited and must be paid out in full at the
termination of employment. So-called “use-it-or-lose-it”
vacation plans, which are permissible in most other states, are
therefore illegal in California.

6. California’s
   “Baby WARN Act”

Most employers are
aware that the federal WARN Act requires that employees must be given
at least 60-days’ advance notice of certain large-scale layoffs. Many employers do not realize, however, that California has a
separate state statute that also requires 60-day advance notice to
employees, but which includes a substantially different definition of
the types of layoffs that will trigger the notice requirement. For
example, under California law, notice is normally required whenever
50 employees are terminated in 30 days from any facility that has
employed 75 or more workers within the last 12 months. Under federal
law, by contrast, the same number of layoffs would only trigger
advance notice where a facility was either being closed outright or
will suffer a workforce reduction of 33% or more. The penalties for
non-compliance under California’s so-called “baby” WARN Act are
also much harsher than those of its federal analog.

7. Strict
   Final Paycheck Requirements

Under California
law, an employee who is involuntarily terminated or who resigns with
more than 72-hours notice must be given his final paycheck (including
all accrued but unused vacation time) “immediately” upon the
termination of his employment. An employer is liable for steep
“waiting time” penalties equal to one-day’s wages for every day
of non-compliance.

8. Profit Based Bonuses Are
   Potentially Illegal

Many employers are
shocked to learn that the “profit-based” bonus incentives that
they generously offer to their employees are potentially illegal
under California law. The problem arises where the baseline measure
of “profit” or “net revenues” used to calculate the
employee’s bonus includes employer expense items, such as workers
compensation expenses or cash shortages. California law prohibits
employers from deducting any amounts for these items from an
employee’s wages. And a number of court decisions have construed
incentive bonus formulas to operate as prohibited de facto
deductions for these categories of expenses.

9. Employees Are More Likely To be
   Deemed “Disabled.”

Under the federal
the Americans with Disabilities Act (“ADA”), an employee is
deemed to be “disabled” and thus entitled to “reasonable
accommodation” whenever he is “substantially limited” in one or
more “major life activities.” Under California law, however, an
employee’s condition need not be “substantially” limiting and
the effects of mitigating measures, such as controlling medications,
are not considered. As a result, many employees whose medical
conditions are unprotected under the ADA must be accommodated under
California’s law.

10. Covenants Not to Compete Are
    Generally Unenforceable.

Most states permit
enforcement of covenants not to compete which are deemed to be
“reasonable” in scope and duration. California courts, by
contrast, refuse to enforce almost all non-competition agreements as
against public policy. But these same courts will enforce reasonable
non-solicitation agreements and non-disclosure agreements intended to
protect proprietary trade secrets. But employers cannot merely use
overly-broad non-competition provisions from other states and expect
California Courts to sever the unenforceable provisions while
enforcing the rest. To the contrary, California Courts have
frequently held that the state policy favoring competition requires
them to invalidate the entire agreement rather than
reform or sever its provisions to conform to California law. Indeed,
some courts have even held that the employer may be successfully sued
for “unfair competition” if it requires its California employees
to sign an unenforceable non-compete agreement as a condition of
their employment. An employer that uses its “standard”
non-compete agreement in California does so at its peril.

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