• LAW
Jane Bei, chief financial officer at California Electronic Asset Recovery, thought she had a deal. Last April, the company’ s former sales director asked whether she could get back the position she had left in August. By then, CEAR, an electronics recycling company in Mather, had hired a replacement and couldn’ t afford two salaried people in that role. So the former employee made the company an offer: She’ d work as a contract salesperson on commission only, earning 10 percent of each sale. She’ d work off-site and set her own schedule. Bei says both sides thought it was a good plan.
But when CEAR ran the arrangement by their human resources expert, the answer was no. Under federal and California state labor law, the former employee would need to have her own company and do similar work for other clients to be a legal independent contractor.“ It’ s frustrating because we both lost,” Bei says.
But what the parties want doesn’ t matter when it comes to the key state rules on employee classification— who qualifies as an independent contractor, and which employees must be paid hourly as nonexempt vs. salaried as exempt. There’ s a reason, say proponents of the current framework: Without those mandates, employers could force workers into arrangements that look consensual but aren’ t.
Recent court cases have tightened up the classification requirements even more. Given the penalties associated with mistakes, it’ s more important than ever that companies stick to sound personnel management procedures to stay in compliance, say employment lawyers and human resource experts.
CALIFORNIA RULES JUST GOT TOUGHER The California Division of Labor Standards Enforcement launches hundreds of investigations on employee classification each year and sends a report to the state Legislature on how many companies it has fined for breaking wage and hour laws. In 2016, the department issued about 300 citations involving overtime and misclassification, with penalties totaling about a million dollars statewide. One company was hit with a fine of $ 221,000.
The rules often are so complex that assessing whether a business is in compliance can be a job for specialists. Take the regulations on the“ exempt-nonexempt” division— who must be paid hourly and who can be salaried. Those in executive, administrative or professional roles generally can be salaried. Most others must be paid hourly, receive overtime and be provided meal and rest breaks.
Those categories may seem straightforward, but there are trip wires. For example, to meet the executive exemption, a worker must spend at least 51 percent of their time on managerial tasks, including regularly exercising“ discretion and independent judgment.” But that phrase has a specific meaning:“ An employee who merely applies his or her memory in following prescribed procedures or determining which required procedure out of the company manual to follow” isn’ t exercising discretion and independent judgment, according to the California Department of Industrial Relations’ website.
And to get the administrative exemption, the employee must,
“ The entire construct of independent contractor classification has changed. Every employer should be looking at every contractor they use and figuring out what to do.” among other requirements, do“ office or non-manual work directly related to management policies or general business operations of his or her employer or his or her employer’ s customers.” But the rule carefully distinguishes between“ administrative” functions and the“ production” aspects of the business: Someone who spends too much time helping create a product the business sells doesn’ t qualify.
Meeting the professional exemption is more straightforward. The employee has to work in a job that requires a license or certification or one that’ s“ commonly recognized as a learned or artistic profession,” among a few other rules.
Employers often wrongly think that job titles matter in assessing classification.“ Many people say,‘ We’ re going to hire this person, and their job title is going to be X,’ and that should be good enough,” says Amelya Stevenson, president of human resource consulting firm e-VentExe in Granite Bay.“ I tell them,‘ Throw the title out the window.’ What the administrative law judge will look at is... their actual duties every day.” She points to Starbucks, which has been sued by store managers alleging the company wrongly labeled them exempt. Those cases turn in part on whether, titles aside, managers spend the majority of their time making coffee.
In July 2017, judges in the federal Ninth Circuit reversed a lower-court decision, which had ruled that a California bank’ s underwriters were exempt from overtime and so were not owed back wages. The Ninth Circuit majority disagreed.
— Jennifer Randlett Madden, employment lawyer, Delfino Madden
48 comstocksmag. com | August 2018