Common Employment Issues Faced By California Businesses

We have invited employment law attorney Andrea Paris to explain certain employment issues that many of our estate planning clients face today.  Andrea Paris advises and represents small to medium sized businesses in employment matters. She takes a holistic approach to helping businesses and individuals navigate complex employment laws and resolve disputes with an eye towards her clients’ growth. Andrea is on the Associate Board of Project Youth OCBF, a non-profit that helps first generation students in Santa Ana get to college. In her free time, she’s working on improving her golf game.  Here’s Andrea:

Common Employment Issues Faced By California Businesses

Owning a business is hard work and the complicated federal and state laws, especially those in California, add an additional layer of anxiety for most business owners.  To help ease that fear of not knowing what you don’t know, below is a short list of the most common employment issues that businesses face.

1. Misclassifying an employee as an independent contractor.

The gig economy makes it quite easy for companies to fill the labor gap in their businesses with non-employees who are often referred to as freelancers, independent contractors, or 1099 workers.  This makes a lot of business sense because it allows growing companies to get the work done without the added costs that come with hiring an employee.  However, the costs associated with misclassifying someone as an independent contractor may exceed what your business saves.

Unfortunately, it is commonly misunderstood that if someone works remotely, sets their own hours, or works part-time that it qualifies the person as an independent contractor.  The actual test is a little more complicated and has been made even more difficult to meet by a recent California Supreme Court decision called Dynamex Operations West, Inc. v. Superior Court.

In Dynamex the Supreme Court held that the appropriate test of whether someone is an employee or an independent contractor under an applicable wage order is the “ABC” test. Under this new independent contractor test, a worker is properly considered an independent contractor who doesn’t have to meet requirements of minimum wage, meal and rest breaks, and overtime pay, among other things, if the hiring entity establishes:

(A) that the worker is free from control and direction of the hirer in connection with the performance of the work, both under the contract for the performance of such work and in fact;

(B) that the worker performs work that is outside the usual course of the hiring entity’s business; and

(C) that the worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed for the hiring entity.

It should be noted that the Court specifically stated that the assumption is that anyone providing services is an employee unless the hiring entity is able to establish all 3 parts of the new independent contractor test.  Read more about the ABC Test here: http://www.andreaparislaw.com/2018/05/independent-contractor-test/

Do your independent contractors meet all the requirements of the ABC test?

2. Believing that paying an employee a salary means you don’t have to pay them overtime.

This is another common misclassification issue that often results in companies having to pay tens of thousands of dollars (per employee) in back pay and penalties.  Employees who do not receive overtime pay for overtime hours worked are called “exempt” employees.  That is, they are “exempt” from a number of wage and hour laws, including overtime laws.  The exempt categories and their specific tests are beyond the scope of this article, however, there are usually two parts, and the employee must meet both parts of the test to be properly considered “exempt”:

• Salary test – For the main exempt categories of professional, administrative, and executive exempt employees, the employee must make at least twice the state minimum wage for full-time employment.

• Duties test – The duties required to meet any of the exemptions is particular and merely the ability to exercise independent judgment or make decisions is not enough.

3. Accommodating employees who are sick or injured.

Companies with 5 or more employees are subject to anti-discrimination laws (including disability discrimination) outlined in the Fair Employment and Housing Act (FEHA).  Unbeknownst to many small and medium-sized businesses, in addition to not discriminating against disabled employees, and employer is required to engage in what is the “interactive process” and reasonably accommodate a disabled employee.  The interactive process is essentially communication with an employee who has a known disability or medical condition and requests accommodation to determine what could be done to help the employee get back to work.  Reasonable accommodations may include things such as time off work, modified duties, an ergonomic chair, modified work schedule, etc.  You may learn more about the interactive process and accommodating disabled employees here: http://www.andreaparislaw.com/2011/09/interactive-process/.

California employers, especially small to medium-sized businesses, face a significant challenge in ensuring compliance with the numerous, and constantly changing, employment laws.  Since the cost for failing to comply with the law is generally in the tens, if not hundreds, of thousands of dollars, it is important to have a resource to help ensure compliance and guide you through the issues that will inevitably arise when you have employees.  To learn more please visit: www.andreaparislaw.com/blog.

John L. Wong, Esq.

John Wong advises on all aspects of estate planning, probate, asset protection and trust administration. He believes that estate planning is about planning for life; while having protections in place should the unexpected occur.