Common Ways Employers Violate Wage & Hour Laws in California

California Employment Laws provides wage and hour protections for employees. Many employers, intentionally or not, violate these protections. Regardless of the employer’s intent, however, the consequences for wage and hour violations can be severe. Below are some common ways employers violate California wage and hour laws:

Misclassify Employees as Independent Contractors

Independent Contractors are defined as workers who are in business for themselves. Independent contractors are generally free to take on as many simultaneous projects as they choose. Independent contractors can determine the time, location, and manner of how they complete the work the project requires them to do. 

Employees are workers who are employed by a business, person, or governmental entity. In an employer-employee relationship, employer generally exercises a high degree of control over the wages, hours, or working conditions of the employee. 

The distinction between independent contractors and employees are important in that employees are afforded greater legal protections which independent contractors do not. Protections include, right to overtime pay, right to meal breaks, and the right to a minimum wage.   

California Supreme Court passed a landmark decision in 2018 that determines whether or not a worker should be classified as an employee or an independent contractor. Under the ABC Test the worker is presumed to be an employee unless the employer can establish that: 

• The worker is free from control and direction of the hiring entity (both by contract and in fact);
• The individual performs work that is outside the usual course of the hiring entity’s business; and
• Individual engages in an independently established trade, occupation, or business

All three parts must be satisfied in order to establish that the worker is properly classified as an independent contractor. Further, in May 2019, the Ninth Circuit clarified the California Supreme Court 2018 decision, holding that the test applies retroactively. Meaning, organizations will have to show that independent contractors, prior to the 2018 decision, satisfy all three parts of the ABC Test. 

Fail to Follow the Rules on Final Paychecks

Greatest risk of not being paid comes when an employee is terminated and the timing of an employee’s final paycheck depends on whether they are fired or quit. 

Termination

Generally, an employee who has been fired must be paid all unpaid wages that have been earned up to and including the date of termination. That payment must be on the same day that the employee is terminated. Some limited exceptions to this rule, depending on the industry in which the worker is employed. 

Resignations 

Employees who quit and provide at least 72 hours notice before their last day of work must be paid their final wages on their last day, assuming it is the last day stated in the notice. Employees who quit without giving notice must be paid their final wages within 72 hours after their last day of work.

Vacation Pay 

Under California Law, paid vacation is regarded as a form of wages. Paid vacations are compensation for the labor the employee performs, but the payment is delayed until the employee takes the vacation. Employers are not required to offer vacation pay to their employees, however, if they do they must follow certain rules if they do. If an employment agreement includes paid vacation, an employee is entitled to be paid wages for unused vacation time that has vested the employee’s work ends. The right to a paid vacation vests as the employee performs the work that entitles the employee to a paid vacation. 

When the employment relationship is terminated, the employee is entitled to be paid for the portion of the employee’s unused paid vacation that the employee has earned.

Fail to Fully Relieve Employees of Duty during Breaks

Non-exempt employees have a legal right to receive meal and rest periods. Most exempt employees still have the right to take meal breaks. The number of breaks depends on the length of the employee’s shift. When an employer fails to provide one legally mandated rest and/or meal break, the employee is entitled to one extra hour of pay at the employee’s regular hourly rate. If the employer fails to provide multiple rest breaks or meal periods, the employee can earn up to one extra hour per workday for their missed rest periods and an additional one hour per workday for their missed meal breaks. 

If the employee works six hours or less, the meal period can be waived by mutual consent of the employee and the employer. If the employee works for more than six hours, the meal break cannot be waived. 

Fail to Track or Pay Overtime

Both Federal and California law requires non-exempt employees to be paid overtime when the employee works more than 40 hours in a work week. California law goes further in providing rights that exceed federal overtime protections. 

In California, overtime must be paid to nonexempt employees when the employee works:

• More than 8 hours in a workday,
• More than 40 hours in a workweek; 
• A seventh consecutive day in any workweek. 

The usual overtime rate of pay is one and one-half of the employee’s regular rate of pay, also known as “time and a half.” An overtime rate of twice the employee’s regular rate of pay (“double-time”) applies to hours worked:

• In excess of 12 hours in a workday, or 
• In excess of 8 hours on the seventh consecutive workday in a workweek

These are just some common ways employers violate CA wage and hour laws. In California, most Employment Practice Liability Insurance (EPLI) policies do not cover wage and hour claims but some may provide a sub-limit for defense coverage. Let us know if you have any questions regarding wage and hour or would like an EPLI quote providing sub-limits for Wage and Hour defense. If you have specific questions regarding payroll compliance, contact our friend Steve Goldstein, President of Payroll Management Solutions (310-491-3467). Your attorney should review your compliance policies. We are here to help!

*This article is intended to be used for informational purposes only and not to be construed as legal advice.