Employer's Liability Under Labor Code Section 226.7 Is Reduced

In a recent published decision, the California Labor Commissioner held that payments provided for under Labor Code section 226.7 for missed meal and rest breaks is a penalty and not a wage. This is a favorable ruling for employers in California which settles a long undecided issue over Section 226.7, which provides that employees are entitled to one additional hour of pay at the employee’s regular rate of pay for each day the employee does not receive a meal or rest period. By holding that the payment provide for under Section 226.7 is a penalty, the Labor Commissioner shortened the time period for which employees can seek Section 226.7 damages from three years to one year. The Code of Civil Procedure section 338 provides for a three year statute of limitations period for the recovery of wages. However, under the Labor Commissioner’s recent holding that Section 226.7 damages are a penalty, employees are limited to a one year statute of limitations period under Code of Civil Procedure section 340. The Labor Commissioner’s holding effectively reduces a Plaintiff’s damages under Section 226.7 by two-thirds.

The case is Hartwig v. Orchard Commercial, Inc., Case No. 12-569901RB. This case has been made public and is binding on any hearing before a Deputy Labor Commissioner or Hearing Officer. To view the Labor Commisioner's ruling, click here.

Contesting Employee's Unemployment Insurance

Question: I recently terminated an employee for poor performance, and the former employee has now filed for unemployment benefits. Should I fight the claim?

Answer: Unemployment benefits are designed to be a safety net to tide employees over between jobs. In California, an employee is generally presumed to be eligible for benefits. An employer can counter that presumption by showing that (1) the employee voluntarily quit employment without good cause, or (2) the employee was discharged for misconduct. Misconduct does not mean incompetence, negligence, or good faith errors in judgment. Misconduct means a willful or wanton disregard of an important duty to the employer, which disregards and injures the employer’s interests. Put another way, your employee must intentionally do something very bad in order to be disqualified from benefits. Thus, unless the employee does something egregious like steal or bring a weapon to work, more often than not the employee will prevail on a claim for unemployment benefits.

However, there is more to consider than merely whether you are likely to win or lose. Before deciding whether to fight an unemployment claim, you should assess several factors. On the plus side, if you win, your unemployment insurance account will not be affected. If you win, it may also discourage the employee from filing other, more dangerous claims against you.

On the negative side, even if you win, you may antagonize the employee and generate additional claims against you, such as discrimination claims or claims for unpaid overtime. Even if these claims have no merit, they will cost much more to fight than the unemployment benefits would have cost. Also, any statements you make in the course of fighting the claim could come back to bite you in any future litigation. In addition, if you fight the unemployment claim and lose, you may inspire the employee to file additional claims. Employees generally do not understand that while the employee gets the benefit of the doubt on an unemployment claim, on most other claims the employer is “presumed innocent until proven guilty.” Thus, a successful unemployment claim may make the employee think that the legal system offers easy money and generate additional claims.

If you decide not to contest an unemployment claim, you will not antagonize the employee, and the employee will receive a little money to help them through until the next job. This may allow the employee to move on with his or her life, rather than seeking revenge against you. Often, therefore, it will ultimately be more beneficial to allow an undeserving employee to obtain benefits than to fight every claim as a matter of principle.

New Form I-9 Available for Employers

The United States Customs and Immigrations Service (USCIS) has recently published the new Form I-9, Employment Eligibility Verification. Employers can download the new form at the USCIS website. Employers are required to complete a Form I-9 within three business days of hiring a new employee and are required to retain the forms for three years post-hire or one year after termination of employment, whichever is longer (click here for other time periods for retaining employment documents). Employers are required to use this new form by January 2006, but can begin using it before that time.

Employer's Liability For A Contractor's Labor Code Violations

Although Labor Code section 2810 quietly went into effect on January 1, 2004 and does not appear to have caused much alarm during the last year, its significance to certain industries or employers who routinely use contractors will not go unnoticed for long.

The law prohibits persons or entities from entering into contracts or agreements for labor or services with a construction, farm labor, garment, janitorial, or security guard contractor where the person or entity knows or should know that the contract or agreement does not include funds sufficient to allow the contractor to comply with all applicable local, state, and federal laws or regulations governing the labor or services to be provided. An employee who is aggrieved by a violation of the law may file an action for damages to recover the greater of all of his or her actual damages or $250 per employee per violation for an initial violation and $1000 per employee for each subsequent violation. Upon prevailing in an action, the employee also may recover costs and reasonable attorney’s fees.

In essence, the law holds entities strictly liable for their contractors’ and subcontractors’ compliance with applicable laws, including those affecting wages and hours, safety, benefits, civil rights, and workplace conduct, among others. An aggrieved employee no longer needs to prove that the person or entity jointly employed him or her, along with his or her direct employer, in order to collect damages from the person or entity for its contractors’ violations of the law.

The breadth of the duty created by this law is startling. For purposes of the statute, the term “knows” includes but is not limited to “knowledge, arising from familiarity with the normal facts and circumstances of the business activity engaged in, that the contract or agreement does not include funds sufficient to allow the contractor to comply with applicable laws.” The phrase “should know” includes, but is not limited to, “knowledge of any additional facts or information that would make a reasonably prudent person undertake to inquire whether, taken together, the contract or agreement contains sufficient funds to allow the contractor to comply with applicable laws.” In addition, the law provides that a failure by a person or entity to request or obtain any information from the contractor that is required by any applicable statute or by the contract or agreement between them, constitutes knowledge of that information. Thus, contractors cannot claim “hear no evil, see no evil” as a defense.

There are two minor exceptions to the law. Persons or entities who execute a collective bargaining agreement covering the workers employed under the contract or agreement and persons who enter into a contract or agreement for labor or services to be performed on their home residences (provided that a family member resides in the residence for at least a part of the year) are excepted from the law.

For the vast majority of entities that are not excepted from the law, there is a safe harbor provision. There is a rebuttable presumption affecting the burden of proof that there has been no violation of the law where the contract or agreement meets certain requirements. A contract or agreement with a construction, farm labor, garment, janitorial or security guard contractor for labor or services must be in writing, in a single document, and contain the following provisions:

1. The name, address, and telephone number of the person or entity and the contractor through whom the labor or services are to be provided;
2. A description of the labor or services to be provided and a statement of when those services are to be commenced and completed;
3. The employer identification number for state tax purposes of the contractor;
4. The workers’ compensation insurance policy number and the name, address, and telephone number of the insurance carrier of the contractor;
5. The vehicle identification number of any vehicle that is owned by the contractor and used for transportation in connection with any service provided pursuant to the contract or agreement, the number of the vehicle liability insurance policy that covers the vehicle, and the name, address, and telephone number of the insurance carrier;
6. The address of any real property to be used to house workers in connection with the contract or agreement;
7. The total number of workers to be employed under the contract or agreement, the total amount of all wages to be paid, and the date or dates when those wages are to be paid;
8. The amount of the commission or other payment made to the contractor for services under the contract or agreement;
9. The total number of persons who will be utilized under the contract or agreement as independent contractors, along with a list of the current local, state, and federal contractor license identification numbers that the independent contractors are required to have under local, state, or federal laws or regulations; and
10. The signatures of all parties and the date the contract or agreement was signed.

Any material changes to the terms and conditions of the contract or agreement must be in writing, in a single document, and contain all of the provisions listed above that are affected by the change. If any of the above provisions are unknown at the time the contract or agreement is executed, the best estimate available at the time is sufficient to satisfy the requirements. If an estimate is used in place of actual figures, the parties to the contract or agreement have a continuing duty to ascertain the information and to reduce that information to writing once the information becomes known. The breadth and detail of information required by the safe harbor provision, as well as the ongoing requirement to update the information as it changes, make it an onerous one to meet.

Disclaimer: This is simply a general overview and is not a comprehensive article regarding a specific factual scenario. Each factual scenario is different and there is not enough time, nor space to address all different scenarios. You need to speak with a lawyer if you have a legal question.

Employer's Record Retention Periods

Q: How long should California employers maintain employee records?

California employers are subject to a myriad of federal and state requirements for the retention of employment records. Below is a brief list of important records employers should maintain and the time periods they should be retained in order to avoid civil penalties and to protect against litigation. This is a general list that pertains to most employers in California. Employers should consult with an employment attorney to ensure that they are in compliance with all applicable document retention laws.
Payroll Records
Name, address, Social Security number, occupation, terms and conditions of employment,
the beginning and end of each work period, total daily and period hours, meal periods and split-shift schedules, rates of pay, total wages paid each payroll period, net wages and deductions. These records should be maintained for 4 years pursuant to the FLSA, Cal. Unemployment Insurance Code, and the statute of limitations for various wage and hour claims.

Employee Wage Records
Time cards, wage rate calculation tables for straight time and overtime, shift schedules, individual employee’s hours and days, piece rates, records explaining wage differentials between sexes. These records should be maintained for 4 years pursuant to the FLSA, Cal. Labor Code and the statute of limitations for various wage and hour claims.

Employee Personnel Files
Disciplinary notices, promotions and demotions, performance evaluations, discharge, layoff, transfer and recall files, training and testing files. These records should be maintained for 2 years pursuant to Title VII, ADEA, FEHA, and the ADA.

I-9 Forms (employment eligibility forms)
The later of 3 years from hire date or 1 year after termination pursuant to the Immigration Reform and Control Act.

Hiring Records
Job applications, resumes, advertisements for open positions, internal postings of open positions. These records should be maintained for 2 years pursuant to Title VII, FEHA, ADA, and the ADEA.

Employee Health Records
Records of job injuries, drug and alcohol test records. These records should be maintained for 5 years purusant to OSHA and Cal-OSHA regulations.

Employee Benefits Data
COBRA notices, summary plan descriptions and earnings, beneficiary designations. These records should be maintained for 6 years, but not less than 1 year following a plan termination as determined by ERISA.

Workers’ Compensation Records
Claim file for every work-injury claim containing at least the worker’s name, the claim’s administrator’s claim number, the date of injury, an indication whether the claims is an indemnity or medical-only claim, an entry if there has been a denial, and a Certificate of Consent to Self-Insure (if appropriate). Should be maintained for 5 years from the date of injury; or 1 year from the date compensation was last provided to the employee; or after all compensation due has been paid; or if a claim file has been audited, when the audit becomes final. Cal. Code of Reg.

Disclaimer: This is simply a general overview and is not a comprehensive article regarding a specific factual scenario. Each factual scenario is different and there is not enough time, nor space to address all different scenarios. You need to speak with a lawyer if you have a legal question.

Employer's Right To Search

Q: Is it ever permissible to search an employee’s desk or backpack?

Employees may occasionally need to search an employee's desk, locker, purse, or other possessions. This can arise where the employee is suspected of possessing drugs or a weapon, or where the employee is accused of theft from the employer or another employee. There are no laws specifically addressing a private employer's right to conduct such searches. (The restriction on searches and seizures contained in the Fourth Amendment to the U.S. Constitution applies only to searches and seizures by the government, not by private companies or individuals.) Therefore, a balancing test applies: does the employer's need for the information outweigh the employee’s expectation of privacy?

It is important, therefore, to reduce employees' expectation of privacy by informing them that their desks, lockers or personal possessions may be searched if deemed necessary by the employer. This should be done through an appropriate policy in the Employee Handbook.

Sample Policy:

Company vehicles, lockers, files, offices, computers and desks are the property of the Company. They are to be used only for work-related purposes unless prior approval is obtained through _______________. The Company reserves the right to inspect all company property at any time to ensure compliance with its rules and regulations.

Disclaimer: This is simply a general overview and is not a comprehensive article regarding a specific factual scenario. Each factual scenario is different and there is not enough time, nor space to address all different scenarios. You need to speak with a lawyer if you have a legal question.

Employer's Obligations to Respond to Subpoenas

Question: I just received a subpoena for personnel information and other confidential information concerning a lawsuit in which my company is not a party. Can I just ignore it?

Answer: No. You need to take prompt action to protect your interests. If you do nothing, you will waive any valid objections you may have, and may be fined or otherwise punished by the court. In the event you receive such a subpoena, you should check the validity of the subpoena. Has it been properly filled out and served? Service by mail is not valid. Subpoenas must be personally served, i.e., handed to you or something similar to this.

Your company and its employees have privacy rights which protect the disclosure of personnel files and related information. California law requires that a request for a personnel file include a “Notice to Consumer” notifying the employee that such records are being sought, and providing the individual an opportunity to object to the disclosure of the information. If the employee or former employee has not been notified, or objects to the production of the requested records, the employer should not produce the information requested unless and until a court orders otherwise, or the affected employee agrees to the production. If the subpoena requests information that would not involve records concerning a particular employee, or requires that the custodian of records delete all information which would identify any employee, no notice to consumer is required and the employer must either comply or file a motion with the court to “quash” the subpoena.

If the subpoena seeks the disclosure of confidential or proprietary information, you should contact an attorney and move to quash the subpoena or seek an appropriate protective order to preserve the confidentiality of the information sought.

Employers should not produce requested documents before they are due and without being satisfied that the proper subpoena procedures and notice requirements, if applicable, have been met.


Disclaimer: This is simply a general overview and is not a comprehensive article regarding a specific factual scenario. Each factual scenario is different and there is not enough time, nor space to address all different scenarios. You need to speak with a lawyer if you have a legal question.