California Dept. of Industrial Relations Creates Wage Theft Crime Unit

The state Labor Commissioner announced the creation of a Criminal Investigation Unit (CIU) to target employers who perpetrate “wage theft.”

Generally, “wage theft” is a phrase used to refer to infractions of the California Labor Code involving the payment of wages to workers. Wage theft might refer to employers who fail to pay for all hours worked, fail to pay nonexempt employees overtime, fail to pay minimum wage or fail to properly classify workers as employees and report them to the various state and federal agencies.

According to Labor Commissioner Julie Su, the new criminal unit “will be tasked with leveling the playing field for California employers by raising the stakes for those who underpay, underbid and under-report in violation of the law.”

The goal is to protect workers and to allow companies who follow the law to compete. The CIU will handle cases including:

• Workers’ compensation violations
• Theft of labor (felony or misdemeanor)
• Payment of wages with bounced checks or insufficient funds
• Unlicensed farm labor contractors and garment manufacturers
• Kickbacks on public works projects
• Violations involving minors on the job

The CIU will conduct investigations, make arrests, file criminal charges and serve subpoenas and inspection warrants. The CIU will be made up of sworn peace officers who have completed the police academy and who qualify to carry firearms.

Wage theft prevention certainly appears to be at the forefront of the Labor Commissioner’s agenda. In January, HRWatchdog reported that the California Department of Industrial Relations (DIR) also launched an interagency Labor Enforcement Task Force (LETF) to “combat the underground economy” by cracking down on businesses that do not follow the state’s  labor laws — hiring employees off the books and paying them under the table.

Employers should not forget that the Wage Theft Protection Act (AB 469) took effect January 1, 2012. Under AB 469, employers must provide nonexempt employees with a notice at the time of hire specifying certain wage and employment information.

Gail Cecchettini Whaley, CalChamber Employment Law Editor/Staff Counsel

CalChamber customers can visit HRCalifornia for a free white paper with information about the wage notice. CalChamber also provides a sample wage notice for download.

 

Law School Grad Without a License Properly Classified as Exempt

A California Court of Appeals recently examined whether a law school graduate who is not yet licensed to practice law is an exempt employee or is nonexempt and entitled to overtime. The court ruled in Zelasko-Barrett v. Brayton-Purcell, LLP, that the law clerk met the professional employee exemption.

This is the first California court decision to apply and extend a federal court's ruling in Campbell v. PricewaterhouseCoopers LLP that unlicensed accountants may be classified as exempt employees. HRCalifornia members can read more on the Campbell ruling.

Matthew Zelasko-Barrett, who worked as a law clerk for almost two years, sued his former law firm for failing to pay him overtime wages and provide other benefits under California law for the time period that he worked as a law clerk before passing the bar exam. 

He alleged that he was wrongly classified as an exempt employee under the professional exemption test. Because practicing law is one of the listed professions in the exemption for which licensure is required, he argued that he could not be considered employed in a law-related professional capacity unless he was licensed to practice law.

The court disagreed.

This case will be covered in more detail for HRCalifornia members in the September 1 edition of HRCalifornia Extra, our e-newsletter. Not a member? Sign up for a 15-day Free Trial.

Gail Cecchettini Whaley, CalChamber Employment Law Editor/Staff Counsel

Non-Residents Entitled to Overtime for Work in California

The California Supreme Court ruled that California overtime laws apply to work performed in California for California-based employers by their employees who don’t live in California. Sullivan v. Oracle (No. S170577 June 30, 2011).

Oracle is a California-based corporation. Three non-residents of California employed by Oracle as training instructors filed a lawsuit against the company. None of the employees lived in California, but they performed work as instructors in California and in other states. During the time period at issue in the lawsuit, one employee worked 74 days in California, another employee worked 110 days and the third employee worked 20 days.   

The employees’ lawsuit claimed that the employees were not paid overtime for days that they worked in California. 

The case was filed in the Ninth Circuit. However, noting the strong state interest in deciding the application of state labor code laws, the Ninth Circuit sent the case to the California Supreme Court to answer the following three questions:

Question 1: In this case, does the California Labor Code apply to overtime work performed in California for a California-based employer by out-of-state workers, such that overtime pay is required for work in excess of eight hours per day or in excess of 40 hours per week? 

Answer – Yes:  The court found that California has “unambiguously asserted a strong interest in applying its overtime law to all nonexempt workers and all work performed within its borders.” 

Question 2: Does California’s unfair competition law (UCL) found in Business and Professions Code Sec. apply to the overtime work described in question one? 

Answer – Yes: The court concluded that the alleged violations of California’s overtime laws could potentially trigger liability under the UCL. The court ruled in an earlier case that the failure to pay legally required overtime compensation falls within the UCL’s definition of an “unlawful … business act or practice.”

Question 3: In this case, does California’s UCL apply to overtime work performed outside California for a California-based employer by non-resident workers if the employer failed to comply with the overtime provisions of the federal Fair Labor Standards Act (FLSA)? 

Answer – No: The court ruled that California’s UCL does not apply to acts based on alleged federal wage law violations that occur outside of the state. 

The court limited its decision in the following crucial respects:

• The court indicated that California overtime laws would apply when the non-resident employee entered the state for “entire” or “full” days or weeks of work. The court distinguished this case from the circumstances of a non-resident worker who enters California “temporarily during the course of the workday.”
• The court indicated that its ruling is limited only to the question of whether these non-resident workers could receive overtime. It specifically declined to address whether other wage-and-hour laws, such as meal and rest periods, pay stubs or vacation time, would also apply to non-resident workers who perform work in California.

This case will now go back to the Ninth Circuit for determination the remaining issues and factual disputes, including whether the workers were improperly classified as exempt.

Gail Cecchettini Whaley, CalChamber Employment Law Editor/Staff Counsel

Not a CalChamber member? Test-drive HRCalifornia with a 15-day Free Trial. 

 

Court Rules Against Employer: Reporters Are Not Exempt Employees

A little over a week ago, the Ninth Circuit Court of Appeals upheld a lower court determination that reporters for a California news agency were improperly classified as exempt employees (Wang v. Chinese Daily News). This case serves as another reminder that employers need to be very careful when classifying employees as exempt.

The employer argued that it classified its reporters as exempt employees under the “creative professional exemption.” The employer also argued that, as exempt employees, the reporters were not entitled to overtime pay and break requirements under the FLSA and state law. The District Court disagreed. When the employer appealed to the Ninth Circuit, the higher court upheld the ruling.

The federal Department of Labor (DOL) explains that to meet the “creative professional exemption,” a journalist's primary duties must consist of work that requires invention, imagination, originality or talent, not work which depends primarily on intelligence, diligence and accuracy. According to the DOL, journalists can't be classified as exempt creative professionals if they only collect, organize and record information that is routine or already public, or if they do not contribute a unique interpretation or analysis to a news product. California wage-and-hour law largely mirrors federal law in this aspect.

The reporters in this case wrote between two and four articles per day, and the "intense pace" the reporters worked under made it virtually impossible for them to contribute a sophisticated analysis or perform any investigative reporting. Many of the articles merely recounted public information that the reporters created by gathering facts on routine community events. The court found that the reporters should be classified as nonexempt employees entitled to overtime and meal and rest breaks as required by California law.

Review HRCalifornia's extensive law library for information on exempt vs. nonexempt employees and how to comply with California's meal and rest break laws. Not a member? Sign up for a free 15-day trial.

DLSE Sweep Yields More Than $400,000 in Fines

On September 16, 2010, a Division of Labor Standards Enforcement sweep covered 162 restaurants, and DLSE agents issued 88 citations against 79 of the restaurants investigated. Overall, the citations resulted in penalties of $448,950, according to a DLSE press release.

The DLSE, part of the California Department of Industrial Relations, regularly conducts statewide enforcement sweeps to search for employment-related abuses, such as not providing workers’ compensation coverage protection, not paying the proper minimum and overtime wages and not withholding the required payroll deductions.

Seventy-four businesses caught in the September sweep failed to provide workers' compensation coverage for their employees, and the $377,000 in citations issued to these businesses made up the majority of the financial penalties levied by the DLSE.

Visit HRCalifornia's Law Library to study up on complying with workers' compensation regulations.