Employment Law Workshop

EMPLOYMENT LAW WORKSHOPFor Agency Principals Only!

Alliance Partnership with Simas & Associates, Ltd.Labor Law Helpline

Legal Representation For Members (Discounted Hourly Rates) Department of Insurance Issues

License DenialsExperience Simas & Associates, Ltd. –2002 to presentDeputy Attorney General, Office of the Attorney GeneralLegal Counsel, Public Employment Relations Board Chief Consultant, California State Assembly, Committee on Labor and EmploymentPractice AreasEmployment Law and Workplace RegulationProfessional Licensing and RegulationCivil Litigation and AppealsHealthcare Law and Regulation Steven L. Simas

September 29, 2011, 3:00 - 5:00 p.m.

Independent Contractor –To Be or Not to Be?

QuestionsDISCUSSION TOPICS –Day 1

September 30, 2011, 8:00 - 10:00 a.m.

The Inside Insurance “Producer” Conundrum

Brief Overview of Unemployment

Questions DISCUSSION TOPICS –Day 2

October 1, 2011, 10:00 a.m. – 12:00 noon

Selected Topics from Day 1 and Day 2DISCUSSION TOPICS –Day 3

It all starts here…Demystifying Exempt v. Non-Exempt Employees

Why do we care?Overtime –daily and weeklyMeal and rest periodsLabor Commissioner ClaimsWaiting time penaltiesThree-year statute of limitations for most claimsFederal Law –Fair Labor Standards ActState Law – Labor Commissioner (Division of Labor Standards Enforcement)Exempt v. Non-Exempt

Questions:If Susan is the Office Manager of Acme Insurance Agency, is she an exempt or non-exempt employee?What if she has business cards that say “Office Manager?”What if she gets paid by the hour and not salary?What if she makes $3000 per month as a salary?If Bob is the Shop Foreman of Miracle Muffler Shop and supervises the mechanics and flow of work on the “shop floor.” Is he exempt?If Phil is the Vice President of Purchasing for Solid Gold Productions, a D.J. services company, and makes a salary of $2500 per month, is he exempt or non-exempt?Exempt v. Non-Exempt (cont.)

General Requirements for an Employee to be exempt:Job title is irrelevant (not even helpful)“Manager,” “Supervisor,” etc. not helpfulCalling someone a title that sounds exempt such as “Computer Systems Analyst” which sounds like a specifically exempt position is not relevantSalary RequirementsThe minimum salary level for exempt employees is $2,773 per month. Calculate this amount by multiplying the state minimum wage of $8.00 by 2,080 hours, multiplying by two and dividing by 12 months ($8.00 x 2,080 = 16,640 x 2 = 33,280/12 = $2,773.33). These amounts are unchanged for 2011.Exercises Independent JudgmentExempt v. Non-Exempt (cont.)

Exercises Independent JudgmentCommon theme among the specific exemptionsMost common pitfall in employee misclassificationMust be day-to-day part of job and not occasionalDEFINITION:Employee has the power to make independent choices free from immediate supervision and with respect to matters of significance; OREmployee must be able to make a recommendation for action subject to the final authority of a superior, as long as employee has sufficient authority for recommendations to affect matters of consequence to the business or its customers. Exempt v. Non-Exempt (cont.)

Types of ExemptionsExecutive Exemption *Administrative Exemption *Professional Exemption *Computer Professional ExemptionOutside Salesperson ExemptionInside Commissioned Salesperson Exemption *Exempt v. Non-Exempt (cont.)

Administrative Exemption Requirements:Employee’s duties and responsibilities must involve office or non-manual work;Directly related to management policies, or general business operations of the employer or the employer’s customers; andEmployee must be “primarily engaged in” the following:Customarily and regularly exercises discretion and independent judgment involving:Assisting the company owner(s) or employee in a bona fide executive or administrative capacity;Performing, under only general supervision, specialized or technical work requiring special training, experience or knowledge; andExecuting, under only general supervision, special assignments and tasks.Exempt v. Non-Exempt (cont.)

Definition of “Primarily Engaged In”:For purposes of the administrative exemption, “primarily engaged in” means that more than one-half of the employee’s work time is spent engaged in exempt work. This means an exempt employee spends more than half of his/her time performing duties such as advising management, planning, representing the company, negotiating, promoting sales, researching business opportunities, making company policy, and purchasing supplies and materials.Exempt v. Non-Exempt (cont.)

Eicher v. Advanced Business Integrations, Inc. The employee was a “senior consultant” for installing a software program. He spent half of his time in the office and the other half training customers at their sites. While he met the minimum salary requirements and worked 40 or more hours per week, the court held that his primary duties involved the day-to-day business of implementing the software and training. Because he did not participate in policy making or otherwise impact the company operations, he did not qualify for the administrative exemption. The court confirmed he was a production worker who did what he was told by his supervisors. Therefore, he was not exempt. 151 Cal.App.4th 1363 (2007).Exempt v. Non-Exempt (cont.)

Executive Exemption Requirements (primarily engaged in):Has duties and responsibilities involving the management of the business of a customarily recognized department or subdivision of the business;Customarily and regularly directs the work of two or more other employees;Has the authority to hire or fire other employees or to make suggestions and recommendations regarding hiring, firing, advancement, promotion; andCustomarily and regularly exercises discretionary powers.Exempt v. Non-Exempt (cont.)

Problems with Executive Exemption Managing business or working in it?Working managers are primarily engaged in working such as taking orders, serving customers, etc. which means they do not qualify Taco Bell ExampleExempt v. Non-Exempt (cont.)

Professional Exemption Requirements (primarily engaged in):One who is primarily engaged in a commonly recognized occupation as a learned or artistic profession such as work that requires advanced knowledge in a science or learning field customarily acquired by a prolonged course of specialized intellectual instruction and study.Usually law, medicine, dentistry, optometry, architecture, teaching, accounting, engineering.Exempt v. Non-Exempt (cont.)

Other ExemptionsCommissioned Inside Sales Employee ExemptionConfusing and difficult to comply withWage Order 4 (insurance companies) Earnings must be 1.5 times minimum wage andover 50% of employee’s earnings must be from salesGuaranteed draw may disqualifyFederal law does not consider insurance sales a “retail establishment” so exemption from overtime may not applyOutside Sales Employee Exemption18 years old or olderSpend more than 50% away from office selling, taking orders, or signing contracts for ordersCannot have more than 50% incidental work (must be sales)Computer Professional Exemption (not discussed)Exempt v. Non-Exempt (cont.)

Exempt v. Non-Exempt (cont.) Let’s look at Susan:Which Exemption may fit her job?Office Manager Acme Insurance AgencyExamine her dutiesWhat is she “primarily engaged in (over 50% of her time)?Does she answer phones? Make coffee? Supervise people?

Administrative ExemptionDo Susan’s duties involve office or non-manual work?Do they directly relate to management policies, or general business operations of the employer or the employer’s customers?Do she (more than 50% of the time) regularly exercise discretion and independent judgment involving:Assisting the company owner(s) or employee in a bona fide executive or administrative capacity;Performing, under only general supervision, specialized or technical work requiring special training, experience or knowledge; andExecuting, under only general supervision, special assignments and tasks.Exempt v. Non-Exempt (cont.)

Executive Exemption applied to SusanIs Susan primarily engaged in:The management of the business of a customarily recognized department or subdivision of the business?Customarily and regularly directing the work of two or more other employees?Doe she have the authority to hire or fire other employees or to make suggestions and recommendations regarding hiring, firing, advancement, promotion?Does she customarily and regularly exercises discretionary powers?Exempt v. Non-Exempt (cont.)

Consequences of Misclassifying Workers as Exempt/Non-ExemptEmployer could be ordered to pay overtimeAll hours worked beyond 8 in a dayAll hours worked beyond 40 in a weekPossible double time for more than 12 in a day or on 7th consecutive dayStatute of limitations is longThree years to file suit (Labor Code section 98.1)Three years to file a Labor Commissioner claim (Labor Code section 98.2)Four years to file suit under the California Unfair Competition Law (See Cortez v. Purolator Air Filtration Products Company (2000) 23 Cal.4th 163).Labor Commissioner Civil PenaltiesUp to $100 per employee plus 25% of underpaid wagesUp to $200 for subsequent offenses and 25% of wagesCan go back the entire 3 years!Failure to pay minimum wage (Labor Code section 223)Exempt v. Non-Exempt (cont.)

Independent Contractor: To Be or Not To Be?And regardless of the intent of the parties, this is always the question.

HypotheticalsStewart does office work for your agency part time after his classes at the University where is studying Political Science. His schedule depends upon his class schedule and changes quarterly. He is paid by the hour for his time Stewart and you have a written agreement where both parties confirm that Stewart is an independent contractor and not an employee. Is Stewart an independent contractor or employee? Why?Independent Contractor: To Be or Not To Be? (cont.)

Hypotheticals (cont.)Susan is a dance instructor who teaches at schools, homes and other facilities she selects. She has her own sound system and collects her own fees from customers. While Susan works for three schools, a youth dance program and a church, 90% of her fees come from the Riverdale Dance Academy which hires Susan to choreograph and produce its Spring and Winter Dance Recitals. Is Susan an independent contractor or employee? Why?Independent Contractor: To Be or Not To Be? (cont.)

For what purpose are we looking at independent contractor status?Multiple tests for Independent Contractors IRS “Twenty Factors” (payroll taxes)CA Employment Development Department (unemployment and taxes)Workers Compensation (coverage or not)US Department of Labor (Fair Labor Standards Act)California Labor Commissioner (Wage and hour law) California Common Law (Liability) EEOC/DFEH (coverage of anti-discrimination laws)Independent Contractor: To Be or Not To Be? (cont.)

Consequences of misclassificationLiability for payroll taxes and penaltiesPenalties and liability for failure to provide workers compensation coverageFederal and wage and hour law liability for overtime, meal and rest periods, etc.Civil liabilityIndependent Contractor: To Be or Not To Be? (cont.)

Generally Classifying Independent Contractors California Common Law Test (No single factor is conclusive):Right to control worker (most important factor)Right to discharge at-will without cause or noticeSkills required in particular occupationDistinct occupation or businessWho supplies instruments, tools, location for performingMethod of payment (time versus job)Independent Contractor: To Be or Not To Be? (cont.)

Recent Cases:Cristler v. Express Messenger Systems (2009) 171 Cal.App.4th 72 – delivery company switched its drivers to independent contractor status using subcontractor firm. The Court of Appeal held that the most significant factor is who has the right to control the work and restated current California law. California law uses the "multi-factor" or "economic realities" test enunciated in S. G. Borello & Sons, Inc. v. Department of Industrial Relations (1989) 48 Cal.3d 341 Independent Contractor: To Be or Not To Be? (cont.)

JKH Enterprises v. Department of Industrial Relations (2006) 142 Cal.App.4th 1046Workers were delivery drivers who drove own cars, had own insurance, used own cell phones, had no training, controlled own route, schedule, order of work performed and signed written contracts and acknowledgements that they were independent contractors.The Court of Appeal held (any guesses?):Independent Contractor: To Be or Not To Be? (cont.)

JKH Enterprises Holding:The hearing officer's decision stated: "Although some of the factors in this case can be indicative of the workers being independent contractors, the overriding factor is that the persons performing the work are not engaged in occupations or businesses distinct from that of [JKH]. Rather, their work is the basis for [JKH's] business. [JKH] obtains the clients who are in need of delivery services and provides the workers who conduct the service on behalf of [JKH]. In addition, even though there is an absence of control over the details, an employee-employer relationship will be found if the [principal] retains pervasive control over the operation as a whole, the worker's duties are an integral part of the operation, and the nature of the work makes detailed control unnecessary. (Yellow Cab Cooperative v. Workers‘ Compensation Appeals Board (1991) 226 Cal. App. 3d 1288 [277 Cal. Rptr. 434]). Therefore, the finding is that these workers are in fact employees of [JKH]."Independent Contractor: To Be or Not To Be? (cont.)

Avoiding independent contractor issuesUse caution in classifying workers as contractorsAnalyze the facts surrounding the work to be done and the worker doing itConsider the consequences if the classification is wrongIf you cannot tell, make them an employee!Hire legal counselIndependent Contractor: To Be or Not To Be? (cont.)

The importance of Exempt versus Non-Exempt classification of employeesArticles from Alliance NewsletterDepends upon job dutiesHire legal counsel to examine thisTwo types of “producers” under California LawOutside Salesperson ExemptionCommissioned Inside Salesperson ExemptionThe Inside Insurance “Producer” Conundrum (cont.)

Outside Salesperson ExemptionEighteen Years old or olderSpends greater than 50% of work time away from office selling, taking orders, etc.Commissioned Inside Salesperson Exemption (Applies only to overtime)Employee’s earnings must exceed 1 and ½ times the minimum wageMore than half of the employee’s compensation must be commissions (IWC, Wage Order 4)The Inside Insurance “Producer” Conundrum (cont.)

Definition of CommissionExemption applies to Wage Orders 4 (Professional Services) and 7 (Retail)The employee must be involved principally in sales activities (not manufacturing or rendering service)Compensation must be a percentage of the price of the product or service (Ramirez v. Yosemite Water Co.(1999) 20 Cal. 4th 784, 804).The Inside Insurance “Producer” Conundrum (cont.)

What is not a commissionAuto Mechanics – while they get a percentage of the sale price of their service, there are not principally involved in sales(Keyes Motors, Inc. v. Division of Labor Standards Enforcement (1987) 197 Cal.App.3d 557, 562-564)Telemarketers – when their commission is based upon number of subscriptions sold, it is not a percentage of price (Harris v. Investor’s Business Daily (2006) 138 Cal.App.4th 28, 38)The Inside Insurance “Producer” Conundrum (cont.)

Fair Labor Standards Act (FLSA)Applies broadly to “industries engaged in interstate commerce” (29 U.S.C. § 202(a)) unless an exemption appliesEmployers have burden of proof to show exception to overtime requirement (29 U.S.C. § 207(a))Employers must prove:Employer is a “retail or service establishment”Each employee’s rate of pay is more than 1.5 times minimum wageMore than 50% of employee’s compensation was commissions on the sale of goodsThe Inside Insurance “Producer” Conundrum (cont.)

Retail or Service EstablishmentA “retail or service establishment” shall mean an establishment 75 per centum of whose annual dollar volume of sales of goods or services (or of both) is not for resale and is recognized as retail sales or services in the particular industry.The “retail concept” does not apply to: “Insurance; mutual, stock and fraternal benefit, including insurance brokers, agents, and claims adjustment offices.” (29 C.F.R. 779.317)The Inside Insurance “Producer” Conundrum (cont.)

Summary of the Conundrum:California law may or may not apply regarding overtime only (not meals, breaks, etc.)Federal law does not exempt insurance producers from overtime as insurance agencies lack the “retail concept” under the FLSAThe Inside Insurance “Producer” Conundrum (cont.)

Meal and Rest Periods Why is this issue important?

Employment Law Workshop

More Related Content

What's hot (20)

Viewers also liked (6)

Similar to Employment Law Workshop (20)

More from Justin Hein (12)

Recently uploaded (20)

Employment Law Workshop