Key Take-Aways from SDEA’s Mid-Year Employment Law Update – August 2018

SDEA’s Mid-Year Employment Law Update took place on August 16, 2018 and was led by employment law attorney Chris Olmsted with Ogletree Deakins.  Chris covered a wide range of topics, and the highlights from the event are outlined below:

Arbitration Agreements

Arbitration agreements have been a hot topic in employment law in recent months.  An arbitration agreement is a written contract in which two or more parties agree to settle a dispute outside of the court system, using an arbitrator instead. Mr. Olmsted recommends utilizing an arbitration agreement for all employees.  This should be a stand-alone agreement in which the employee clearly agrees to give up the right to a jury trial.  Employers may require the signing of an arbitration agreement as a condition of employment, and an opt-out document is not required. Mutual arbitration agreements where the employee also agrees to take certain claims against the employer to arbitration are also an option.  Certain complaints cannot be forced into arbitration, so be sure to work with an experienced California employment law attorney when drafting your arbitration agreements.

Independent Contractors

Various state and federal Independent Contractor (IC) tests have been utilized in California, and employers have often struggled with the difficulty and uncertainty of weighing different factors on different tests.  Recently, the California Supreme Court provided clarification; however, the Court imposed a new test dramatically changing who might be considered a properly-classified IC.

The “ABC” test imposed by the Supreme Court hasn’t been widely-used in California.  To determine whether your Independent Contractor is properly classified, every factor must be met.  Chris cautioned those in attendance that failing to prove just one of these three factors may sufficiently establish IC misclassification and employee status.  The criteria for the ABC test are as follows:

A.       The worker is free from the control and direction of the hiring company “in connection with the performance of the work both under the contract for the performance of the work and in fact”

B.      “The worker performs work that is outside the usual course of the hiring company’s business” and

C.      The worker is “customarily engaged in an independent trade, occupation, or business of the same nature” as the work performed for the hiring entity.

Looking forward, Chris made a series of recommendations regarding employment of Independent Contractors:

1.       Analyze all current Independent Contractors under the new test;

2.       Do not contract with new IC’s without assessing whether you can meet the ABC test;

3.       Use arbitration agreements; and,

4.       Stay updated on developments in this area.

Compensable Hours

In a recent case involving Starbucks Corporation, Troester v. Starbucks, the California Supreme Court surprisingly rules that the “de minimus” doctrine, minutes worked that are too minimal to track, is not recognized in California, and that all time worked must be paid even those minutes before and after clocking out but still performing work duties.  The Troester verdict provided common examples of what may have been previously considered “de minimus” time that now must be counted and paid to nonexempt employees:  Time spent locking up the store, bringing in sidewalk furniture, setting and disarming alarm systems, even walking a fellow employee safely to their car.

Chris recommended that employers develop a system to add the brief periods of additional time worked to employees’ timecards, even if it only adds up to a minute or two of extra time.  Additionally, employers are encouraged to take a close look at their time-rounding practices, and ask if there are good business reason to round time to the nearest tenth-hour, quarter-hour, etc.  He asked attendees to consider if is better not to round at all rather than to round and inadvertently favor the company over the employee, potentially creating problems and opening your company up to liability.

Adjusting Overtime Rates of Pay

Calculating overtime pay rates must include a review of the employee’s “regular rate of pay,” not just his or her base pay rate.  With the exception of a discretionary bonus (holiday bonus or anniversary bonus as an example), bonuses must be considered when calculating an employee’s overtime hours.  Depending on the period of time that the bonus covers, employers may need to divide the bonus equally amongst several pay periods. Chris offered a tool published by Ogletree that details different compensation, whether and how it should be counted toward the regular rate of pay.  Feel free to reach out to Chris or SDEA for that tool.

National Origin Regulations

On July 1, 2018, the Department of Fair Employment and Housing expanded National Origin protections.  Under the expanded definition, “National Origin” means:

1.       Physical, cultural or linguistic characteristics;

2.       Individual’s name;

3.       Marriage or association with a protected group;

4.       Membership in an association/organization;

5.       Involvement in schools or religious organizations.


Chris specifically reminded employers about prohibited language restrictions at work.  Any workplace rule related to language usage must be narrowly tailored, connected to business necessity like safety or efficiency, and written notice must be provided.  Restricting language usage during meal or break times is prohibited.  Restrictions based upon convenience, customer or co-worker preference are also prohibited.

Pay Equity

California employers began 2018 with a new regulation:  Past salary inquiries were prohibited throughout the employee selection process.  The second part of that new regulation required employers to provide a “pay scale” to applicants.  The California legislature has attempted to clarify the second part of the new regulation.

·         What is a pay scale?  A pay scale means a salary or hourly wage range for the open position.

·         Who can request the pay scale for an open position?  Upon request, companies are required to provide this information to applicants after the initial interview for the open position.

·         Can I inquire about salary expectations?  It is acceptable for hiring managers to ask about the candidate’s salary expectations on your application, in your interviews and throughout the selection process.

When promoting or reassigning existing employees, companies are permitted to consider current pay.   However, compensation decisions must be justified by legitimate and non-discriminatory business criteria, rather than consider past pay history.

Pending Legislation

It is important to note that these bills have not been passed but rather are pending legislation before the Governor for the remainder of 2018 and into 2019.  If passed:

a.       SB 826:  Would require female quotas for corporate boards

b.       SB 1284:  Would require employers with 100+ employees to report annual pay to further pay equity amongst women and minorities

c.       AB 2841:  Would Increase mandatory paid sick leave in California from 24 hours to 40 hours

d.       SB 1343 and SB 1223:  Would expand sexual harassment prevention training requirements to all companies that have five or more employees and would need to include all employees in the company

e.       AB 1867:  Would increase the record retention requirements for sexual harassment complaints to ten years

f.        AB 2366:  Would require employers to provide a leave of absence for sexual harassment victims

To stay informed about changing employment laws that impact your business, join San Diego Employers Association’s newsletter by emailing your name and contact information to  SDEA’s next Employment Law Update takes place in January 2019.

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