California wage and hour claims are a complex area of the law. With the millions of workers in the state, there are ample opportunities for employers to violate applicable laws and regulations, whether by mistake or intentionally. Misclassifying employees as independent contractors is but one type of wage and hour claim which commonly arises. Other common wage and hour claims include violations of overtime laws and violations of break time requirements, summarized below.
So how does a company determine whether a worker is an employee or independent contractor?The Division of Labor Standards Enforcement (DLSE) and California courts utilize a “multi-factor” or “economic realities” test which was adopted by the California Supreme Court in S. G. Borello & Sons, Inc. v. Dept. of Industrial Relations (1989) 48 Cal.3d 341. The most significant factor in determining whether a worker is an employee or not is whether the employer has control or the right to control the worker, both as to the work done and the manner and means in which it is performed.
In a more recent case, the California Supreme Court further clarified that “What matters under the common law is not how much control a hirer exercises, but how much control the hirer retains the right to exercise.” The Court also noted that the strongest evidence of this right to control is whether the worker can be discharged without good cause. See Ayala v. Antelope Valley Newspapers, Inc., No. S206874 (June 30, 2014). Therefore, if a worker’s relationship with the company may be terminated at any time without notice or fault, this fact alone will typically weigh heavily in favor of finding that an employer-employee relationship exists.
The minimum wage is the lowest hourly rate at which an employer can pay most employees. There are some instances in which the minimum wage does not apply, and the exceptions are noted in the next section. As of 2015, the federal minimum wage was $7.25 per hour, but the minimum hourly wage in California was $9 per hour and increased to $10 per hour on January 1, 2016. Thus, unless an employee is covered by one of the exceptions, a California employer cannot pay him less than the prevailing state minimum wage of $10 per hour.
Exceptions to California Minimum Wage
California laws permit a limited number of exceptions to the minimum wage requirement. The following employees may work for less than the prevailing minimum wage:
- The child, parent or spouse of the employer (who must usually be the full or partial owner of the business) may be paid a lower rate that is not specified under California statutes.
- Learners or trainees of any age who have no prior experience related to the occupation may receive a wage of not less than 85 percent of the prevailing minimum wage (rounded to the nearest nickel) for no more than their first 160 hours of work. For example, assume the minimum wage is $9; 85 percent of $9 is $7.65. An employee entering the job market for the first time may be paid $7.65 per hour for the first 160 hours of work performed for the company.
- Outside sales representatives are not covered by either federal or California minimum wage laws.
- Workers hired under a legitimate apprenticeship agreement may be exempted from minimum wage laws.
- Individuals who are physically and/or mentally disabled may work for less than the minimum wage whether employed by a for-private or nonprofit enterprise. Nonprofit organizations operating rehabilitation facilities or sheltered workshops that employ these disabled individuals may also pay them less than the minimum wage.
- Although federal law allows employers to pay a reduced hourly rate to employees who routinely earn tips, such as servers in a full-service restaurant, California law prohibits the practice. Even if employees earn a significant amount in tips every day, California employers cannot pay them less than the prevailing minimum wage.
California Overtime Pay
Overtime is another area in which the federal laws differ from California laws. Under federal law, an employer is required to pay “time and one-half” for all hours worked in excess of 40 hours during the workweek. The law does not address the number of hours worked in a day or the number of days worked during the week. Theoretically, under federal law, an employee could work two 20-hour days or four 10-hour days and still receive no overtime pay. California, however, requires overtime for all hours worked in excess of eight hours (but not exceeding 12 hours) in a workday as well as overtime for hours exceeding 40 during a single workweek. California law also requires employers to pay time-and-one-half for the first eight hours an employee works on the seventh consecutive day. If the employee works more than 12 hours in a single day or more than eight hours on the seventh day, the employer must pay an overtime rate of twice the employee’s normal hourly rate.
The Executive Exemption
With the exception of the IWC Wage Order dealing with agricultural employees, the IWC’s Wage Orders for workers provide an executive exemption for an employee:
(1) Whose duties and responsibilities involve the management of the enterprise in which the employee is employed;
(2) Who customarily and regularly directs the work of two or more other employees in the enterprise;
(3) Who has the authority to hire and fire other employees, or whose suggestions and recommendations as to the hiring, firing, promotion or any other change of status of other employees will be given particular weight;
(4) Who customarily and regularly exercises discretion and independent judgment; and
(5) Who is primarily engaged in duties that meet the test of the exemption.
It is important to note that the employee must meet all of these five requirements for the exemption to apply.
An employee does not need to spend 100% of his time actually engaged in “the management of the enterprise.” It is sufficient if the employee spends more than half of his time in true management duties. If he does, he is “primarily engaged” in such duties. Consider this example: If a “manager” of a retail store finds himself short-staffed because one or more of his employees is out sick, and he operates the cash register, that work is non-exempt work. However, if the manager spends more than half of his time fulfilling true management duties, and his non-exempt work takes up less than half of his time, he may be considered an exempt employee.
Moreover, work that is directly related to exempt work, and all work that is necessary for carrying out exempt work, is also considered exempt work.
The test for determining whether any employee, executive or otherwise, is exempt does not depend on the title he/she is given. The courts and the IWC will give no credence to the title “manager,” for instance, in making the determination whether an employee is exempt. As our employment law lawyers have seen first-hand, their only interest will be in determining whether the employee truly meets the salary and duties tests.
The Administrative Exemption
With the exception of the IWC Wage Order dealing with agricultural employees, the IWC’s Wage Orders for other workers provide an administrative exemption for an employee whose duties and responsibilities involve either:
(1) The performance of office or non-manual work directly related to management policies or general business operations of the employer or his/her customers, or the performance of functions in the administration of a school system or educational establishment or institution;
(2) Who customarily and regularly exercise discretion and independent judgment;
(3) Who regularly and directly assist an employer or employee in a bona fide executive or administrative capacity;
(4) Who perform specialized or technical work requiring special training, experience, or knowledge, under only general supervision, or execute special assignments and tasks under only general supervision; and
(5) Who is primarily engaged in duties that meet the test of the exemption.
Note that some of these five requirements use the word “or,” signifying that the requirement may be met in the alternative. For instance, under requirement (3), the employee may assist the employer in either an executive capacity or an administrative capacity.
As is true of the executive exemption, the administrative employee need not spend 100% of his time performing truly administrative work within the definition of the Wage Orders, so long as he spends the majority of his time performing such work. As typical IWC Wage Orders also provide, exempt work includes all work that is directly and closely related to exempt work and “work which is properly viewed as a means for carrying out exempt functions.”
The Professional Exemption
With the exception of the IWC Wage Order dealing with agricultural employees, the IWC’s Wage Orders for other workers provide a professional exemption for an employee who:
(1) Is licensed or certified by the State of California and is primarily engaged in the practice of law, medicine, dentistry, optometry, architecture, engineering, teaching, or accounting, or is primarily engaged in an occupation commonly recognized as a learned or artistic profession; and
(2) Customarily and regularly exercises discretion and independent judgment in the performance of his or her duties.
Again, it is important to note that one of these requirements, requirement (1), is in the alternative. Thus, if one is not a licensed lawyer, physician, dentist, optometrist, architect, engineer, teacher or accountant, he/she may nevertheless be exempt if he/she “is primarily engaged in an occupation commonly recognized as a learned or artistic profession.” On the basis of this alternative requirement, courts have, for instance, ruled that a law clerk was exempt under the professional exemption, even though he had not yet passed the California Bar and was not a licensed attorney. The court reasoned that, as a law school graduate and law clerk, he was primarily engaged in a learned profession, i.e., the law. Zelasko-Barrett v. Brayton-Purcell, LLP (2011) 198 Cal. App. 4th 582.
As is true of the other exemptions, an employee need not spend 100% of his time performing professional exempt work, so long as the majority of his time is spent performing such work. Further, any work which is directly related to professional exempt work or reasonably necessary for performing such work is also considered exempt work.
The California Labor Code and the IWC Wage Orders also provide exemptions for other types of employees, such as computer-related individuals, outside sales persons, commissioned sales persons, certain employees regulated by the Secretary of Transportation, and taxicab drivers. The tests for determining whether or not an employee meets the requirements for these exemptions can be complicated, and is not within the scope of this article. An employer in doubt as to whether an employee engaged in any of these occupations, or the primary exempt executive, administrative or professional occupations, should consult with an experienced employment law attorney to determine whether that employee is entitled to overtime pay.
The award-winning and AV-rated employment attorneys at Gehres Law Group, P.C. represent both employees and employers in the context of wage and hour employment claims. The founder and President of our full-service firm holds a specialized certificate in Labor and Employment Law, making this area of law a focal point of our practice. Because we have represented both sides in wrongful termination suits, we know how the opposition thinks and the obstacles they face, providing us with insights that firms representing just employers or employees do not typically possess.
For questions or more information about your employment related matters, contact our experienced San Diego business and employment law attorneys at (877) 333-2420 or (858) 964-2314 today. Your initial evaluation is always free, so call us today to learn more about the merits of your case.