The Top 10 Wage and Hour Violations in California
What do you think the biggest risk to your business is currently in California? Is it a sexual harassment case? Is it the economy? Is it the potential return of COVID-19? For some businesses it might be, but for most other businesses there is a much bigger calamity on the horizon. COVID-19 and the economic uncertainty of recent years certainly has made this risk worse, but this threat has been around for years and steadily growing. The risk we are referring to often costs companies of all sizes seven and sometimes eight figures to address.
The threat is a wage and hour lawsuit against your business.
Your Biggest Business Risk Is Something You Probably Aren’t Paying Attention To
Before you blow off this risk as something that can’t happen to you, consider these facts. There are approximately 25 wage and hour lawsuits filed every day in California. There has been around a 500% increase in these cases over the last several years. Most of the Fortune 500 companies have been hit multiple times and many small- to medium-sized businesses have been hit at least once.
There have been thousands of high six-, seven-, and eight- figure judgments and settlements in these cases in the last few years alone. And it is widely accepted now that some of the richest lawyers in California are those who are filing and recovering big settlements and judgments in wage and hour actions.
So, the employers paying big money in these cases must have really screwed things up and had significant lapses in their compliance, right? Not so. Most of the lawsuits and settlements involve what most of us would consider minor lapses in compliance or things that easily slip under the radar. In almost all these lawsuits, the employers had no bad motive nor were they negligent. They simply didn’t catch a few of the hundreds of different ways in which employers can easily slip out of compliance with California’s Labor Code and wage orders.
The list of the top ten violations in wage and hour cases in California is not flashy. The list is made up of mostly small, minor violations. But these quickly add up across a group of employees and can translate to millions in exposure under California’s punishing penalty structure. Here are the top ten:
Top 10 Wage and Hour Violations in California
Meal Period Violations. Most companies know the rules on mandatory 30-minute lunch breaks. But many companies don’t realize all the nuances of what the law requires. You can get sued for all sorts of meal period violations, like if lunch breaks are started after the fifth hour of work or if they are accidentally 29 minutes (or less) instead of 30. Another potential violation is if employees carry any kind of communications device that they might have to respond to on a meal break, that could mean the whole break is considered noncompliant.
Rest Period Violations. Rest break obligations are among the hardest to enforce because they are on the clock and most employees will tell you they don’t want or need a full 10 minutes—until they sue you and claim they weren’t allowed to take the full 10 minutes. Requiring your employees to stay on premises or to potentially respond to work communications on break can also cause problems.
Extra Breaks for Longer Shifts. This trips up a lot of businesses. If an employee works more than 10 hours in a day, that employee automatically gets a second 30-minute meal period and a third 10-minute rest break. Longer shifts can trigger even more breaks. Most companies with otherwise good meal/rest break practices often unwittingly have issues with second lunch breaks and third rest breaks.
Meal/Rest Period Premiums. Most companies know the rules on meal and rest breaks. But even with good policies and training, employees won’t be perfect in taking their breaks. If a meal or rest break is missed, short, late, or interrupted, it’s not enough to counsel the employee. California law requires employers to pay a “premium” to employees for these violations equal to one hour of pay at the “regular rate of pay” (which is another gotcha, since that rate is often different from the normal hourly rate). If you don’t pay those premiums, you’ve violated the law, and it’s a target for a lawsuit.
Inaccurate Timekeeping. California law requires employers to keep track of and pay for all time worked, to the minute. Many lawsuits happen because employees track their own time and often put down the same exact start, stop, and lunch times in their time records. This can lead to the underreporting of time worked and is a recipe for a lawsuit based on inaccurate timekeeping.
Rounding Time. Some employers have a timekeeping system that rounds employee time up or down at the beginning and end of a shift. The idea is to make timekeeping more efficient and to find a way to balance out dissuading employees from clocking in too early and not being overly punitive for employees who show up a few minutes late. But you must pay for all time worked in California, to the minute, so a timekeeping system that rounds is an invitation for a lawsuit.
Off-the-Clock Work. Because you must pay all time to the minute, plaintiffs’ lawyers hunt for cases where there is the potential for off-the-clock work, where there are even a few minutes here and there of time that isn’t tracked and paid for. Traps for the unwary include such things as the time it takes to boot up a computer before clocking in; security or check-in time; the time to arm an alarm system, lock a door, and take out the trash at the end of a shift after clocking out; or responding to texts or emails after hours.
Overtime Violations and Bonuses. Most employers think that overtime is paid at time-and-a-half. That’s usually true—unless your business has some type of additional compensation besides hourly pay. Any time employees receive any type of incentive pay, such as a bonus for increased productivity, increased attendance, or hitting other performance metrics, you have to factor that bonus into the overtime rate. It’s a complicated formula that many employers (including sophisticated large employers) mess up or miss altogether, opening them up to huge penalties. (Incentive compensation also can impact the pay rate for sick leave and premium pay.)
Alternative Compensation Models. California unfortunately can sometimes penalize innovation. Such compensation models like piece-rate pay (one rate for certain work and a lower rate for less productive time), alternative workweek schedules like (4/10s), or make-up time policies (work more one day to make up for leaving early another day) can be good tools for a business, but they can get you sued if you don’t meet the stringent requirements under the Labor Code.
Expense Reimbursement and Remote Workers. If your employees have any expenses that are even remotely work related, you must compensate them for it. Do your employees use their cell phones for work? Even to respond to a text from a supervisor here and there? If so, you must reimburse them or stop that practice altogether. And if you have any remote employees, then you arguably have an additional set of expenses to reimburse, including a portion of their home internet and utilities.
Don’t Let Wage and Hour Violations Threaten Your Business
If employers want to avoid these violations or prepare for the inevitable lawsuit that will come from these violations, your first step should be to consult with a competent employment law firm that specializes in wage and hour class and PAGA actions. Medina McKelvey, the founders of California Compliance Solutions, helps California employers efficiently and effectively prevent, assess, manage, and resolve wage and hour cases.
Proactive and diligent employers also consider wage and hour compliance training, testing, and certification for employees and managers in California.
At Cal Comply, our first-of-its-kind online wage and hour training helps California employers stay informed, compliant, and proactive in addressing potential issues, reducing the risk of costly wage and hour lawsuits and the associated legal, financial, and reputational consequences. Click here to learn more about how your business can be protected and even certified in wage and hour compliance in as little time as 30 to 45 minutes per employee.
Questions? Contact us.
