Here Are 10 Common Wage and Hour Violations
Companies in California are required to comply with a wide range of employment laws that are set out in the California Labor Code, California Wage Orders and in important appellate court decisions.
1. Were you misclassified as an independent contractor?
In 2018 the California Supreme Court clarified how independent contractors are to be evaluated in the Dynamex decision. In Dynamex the Court established that for certain wage claims, the ABC Test used in many other states will apply. For a worker to be properly classified as an independent contractor, the employing party must establish that the worker was (A) free from control or direction, (B) performing work outside the scope of usual course of the company’s business, and (C) customarily engaged in an independent trade doing similar work for others.
One year later, the California Legislature passed Assembly Bill 5 that expanded the application of the ABC Test to other kinds of employment claims, not just those contained in the California Wage Orders. Although AB-5 carves out certain occupational categories from the application of the ABC Test, it went into full force and effect on January 1, 2020 and now covers most workers in California.
While we hope that more employers will properly classify all workers in the future, many simply will not. Classifying a person as an independent contractor is easier and less expensive for the employer than classifying someone as an employee. Companies avoid the cost of workers compensation and medical insurance, impose business expenses onto their workforce, and cut down dramatically on administrative costs and payroll-related taxes.
Damages arising out of employee misclassification are often significant and include unpaid minimum wages for off-the-clock work, underpaid overtime, unreimbursed expenses (including cell phone, internet and travel), and additional tax liability. While the value of every wage claim depends on the facts, many workers who have been misclassified for two or more years often prove damages in excess of $30,000 and sometimes considerably more.
Penalties are also available to misclassified workers, including for example, waiting time penalties that can add up to 30 times your average daily rate of pay, missed meal and rest break penalties and penalties for failing to keep proper payroll records and provide complete pay stubs.
California has a generous three-year statute of limitations for most wage claims, which for some wage claims can be extended to four years. That means that if you have worked an independent contractor at any time in the past four years under terms and conditions that violate the ABC Rule, your employment rights likely have been violated and you may be entitled to significant damages and penalties.
2. Were you misclassified as exempt from overtime?
An “exempt” employee under California law may be paid on a salary basis, without overtime wages, without meal and rest periods, without certain record-keeping rights and without some of the other legal protections provided to workers who are nonexempt.
There are five exemptions recognized in California:
- The Executive Exemption;
- The Administrative Exemption;
- The Professional Exemption;
- The Inside Salesperson Exemption; and
- The Outside Salesperson Exemption.
If an employee does not satisfy all requirements for the exemptions, then the employee is entitled to overtime pay, meal and rest breaks and other benefits of employment required to be provided to non-exempt employees. Damages and penalties arising out of exemption misclassification are often significant. It is not unusual for these cases to exceed $100,000.
For a complete explanation of exemption law in California, please see the Kitchin Legal Takeaway, What Does it Mean to Be “Exempt” under California Labor Laws?
3. Do you have unpaid wages for off-the-clock work?
Unless you are properly classified as exempt from overtime based on one of the five recognized overtime exemptions, you are entitled to be paid for every minute you are engaged in performing work for your employer.
Certain industries, including the salon, restaurant, fitness, trucking, and retail sales industries, seem particularly poor at paying employees for all of the work they perform. For example, in a currently-pending class action lawsuit against a fitness studio in San Francisco, my client alleges she and her coworkers were not paid for the time they spent away from the studio choreographing and selecting music for their spin, yoga and strength training classes. Such work that is performed at the direction of the employer and with the employer’s knowledge is deemed to be compensable in California.
If the employer failed to keep track of this off-the-clock work time, then the employee has the right to prove the extent of the work time based on their best recollection. “If the employer fails to produce such evidence [of work time], the court may then award damages to the employee, even though the result be only approximate.’” (Anderson v. Mt. Clemens Pottery Co.) In other words, as an employee you have the right to generate reasonable evidence of the amount of time you worked without compensation if the employer failed to keep track of your work time. Even if the unpaid time is short, the value of the unpaid wages can add up quickly if the off-the-clock work happens regularly. California has rejected the wholesale application of the federal de minimis rule to wage claims. That federal rule excludes from compensable time certain “work” performed before and after the main work performed by an employee.
4. Do you have unpaid or underpaid overtime wages due?
Regardless of whether you are paid on a salary or hourly basis, if you are not properly classified as exempt, you are entitled to overtime wages if you work more than eight hours in a day or more than 40 hours in one work week.
If you are non-exempt (that is, you are entitled to overtime wages) and are paid on a salary basis, California law provides that your salary represents compensation for 8 hours a day and 40 hours a week only. Any time in excess of those hours is not covered by the fixed salary. In other words, you are entitled to additional wages equal to 1.5 times the value of the hourly rate your salary represents for overtime hours.
If you are paid an hourly wage, you are entitled to overtime wages for working more than 8 hours in a day or 40 hours in a work week in accordance with the premium overtime rates. If you work more than 12 hours in a day or more than 8 hours on the seventh day of work in a workweek, then the amount of overtime owed is two times your hourly rate.
Furthermore, your employer may not trade regular hours for overtime hours as if they were equal. They are not. One hour of overtime is equal to one and a half hours of regular time. So, working two hours of overtime is not an equal exchange for taking two hours of regular time off.
One way some employers fail to pay the proper amount of overtime is by failing to include performance bonuses, sales commissions and other forms of monetary compensation into the overtime pay rate. Overtime must be based on your “regular rate of pay.” Your regular rate of pay is calculated by adding together all of your applicable compensation for the pay period and dividing that number by your hours of work. For instance, restaurants that have moved to a service fee in lieu of tips must include the portion of the wage based on the service fee into the overtime rate.
5. Did you receive all of your rest periods?
All nonexempt employees are entitled to 10-minute rest periods for every four hours worked. The Labor Code describes the requirement more exactly:
An employer shall not require an employee to work during a meal or rest or recovery period mandated pursuant to an applicable statute, or applicable regulation, standard, or order of the Industrial Welfare Commission, the Occupational Safety and Health Standards Board, or the Division of Occupational Safety and Health.
The California Wage Orders expressly require employers to provide rest periods as follows:
(A) Every employer shall authorize and permit all employees to take rest periods, which insofar as practicable shall be in the middle of each work period. The authorized rest period time shall be based on the total hours worked daily at the rate of ten (10) minutes net rest time per four (4) hours or major fraction thereof. However, a rest period need not be authorized for employees whose total daily work time is less than three and one-half (3 ½) hours. Authorized rest period time shall be counted as hours worked for which there shall be no deduction from wages.
California employment law does not require employers to guarantee employees take their rest breaks. But the employer must offer rest periods and cannot discourage or impede employees from taking those breaks. These important issues were addressed by California Supreme Court in the Murphy v. Kenneth Cole Productions case in 2007. Many see that case as the most consequential California wage and hour case from the first decade of the twenty-first century.
Rest break violations are observed in many industries where an employee is engaged with customers, clients and patients. Sometimes it simply is too busy in a restaurant for everyone to take their breaks. Similarly, short staffing in medical offices sometimes require an employee to work through their rest breaks. California labor law recognizes this fact of working life and provides for an automatic remedy.
If an employer does not provide a rest break to an employee, the employer must pay the employee an extra hour of wages as a penalty. If two rest periods are not provided in one day, the one-hour penalty is not doubled. The employee can seek these wage penalties under California labor law for violations that occurred three years ago.
If you were routinely denied an opportunity to take one or more rest periods for three years, you could be entitled to your hourly wage multiplied by the number of days you worked during that long period of time.
6. Were you timely provided all of your meal periods?
A meal period is specially defined under California law. The California Wage Orders state that:
(A) No employer shall employ any person for a work period of more than five (5) hours without a meal period of not less than 30 minutes, except that when a work period of not more than six (6) hours will complete the day’s work the meal period may be waived by mutual consent of the employer and the employee. Unless the employee is relieved of all duty during a 30-minute meal period, the meal period shall be considered an on duty meal period and counted as time worked. An on duty meal period shall be permitted only when the nature of the work prevents an employee from being relieved of all duty and when by written agreement between the parties an on-the-job paid meal period is agreed to. The written agreement shall state that the employee may, in writing, revoke the agreement at any time
In addition, when you work more than 10 hours in one day, your employer is required to provide you with a second 30-minute, duty free meal period. Just like rest period penalties, for every meal period that was not provided to you or that was provided late, you are entitled to an extra hour of pay at your regular hourly rate of pay. The statute of limitations on these claims is also three years, which means that damages can add up over time.
7. Do you have unpaid commissions due or were you misclassified as a salesperson?
Since 2013 California Labor Code § 2751 has required all employers to provide written commission agreements to sales employees. Commission agreements must explain how commissions are calculated and earned, and a copy of the signed agreement must be given to the employee.
California commission law is frequently misunderstood by employers. For example, some employers pay wages they call commissions to employees who are not involved in sales. Except with certain exceptions set out in AB-5 and laws governing salon workers, commissions are wages that are earned as result of making a sale of a product or service. Paying an employee on the basis of a percentage of the cost of the service they are providing to a customer, is not generally a commission. It is a piece rate wage. This kind of wage misclassification can result in significant damage to an employee.
In addition, commissions earned by salespersons can sometimes be due long after the employment is terminated. If the commission agreement does not have an enforceable provision that cuts off the right to future commissions (“forfeiture”), the employee might be due wages as payments are made by the customer over time in accordance with the commission agreement. Sometimes commissions can be earned for a period of several years after the employee has left. (Please see the Kitchin Legal Takeaway on this subject.)
Finally, employers regularly fail to pay overtime wage to sales associates by classifying them exempt inside salespersons. However, to be exempt from overtime under the inside sales exemption, three conditions must be met in California.
First, the employee’s work must be covered by either Wage Order 7-2001 (Mercantile Industry covering businesses that are “operated for the purpose of purchasing, selling, or distributing goods or commodities at wholesale or retail; or for the purpose of renting goods or commodities) or by Wage Order 4-2001 (Professional, Technical, Clerical, Mechanical, and Similar Occupations).
Second, commissions paid each pay period must equal more than 50% of the total wages received. If the salary component of the wage is greater than the commission component in a pay period, the employee is entitled to be paid overtime wages if they worked more than 8 hours in one day or more than 40 hours in one work week.
Third, the employee’s earnings must exceed one-and-a-half times the state minimum wage for a full-time employee.
Under California law, inside salespersons can be exempt during one pay period and non-exempt during another. This makes it important for the employer to maintain an accurate record of the hours the salesperson works so overtime wages can be calculated. If the employer fails to keep the required records, the employee has the right to generate their best estimate of the number of overtime hours they worked.
Commission wages raise complicated issues of law that many employers fail to consider. Sales associates whose business-to-business sales cycles are lengthy and who might not receive commission wages for weeks or months at a time are particularly vulnerable to wage theft in commission-based positions.
8. Are you entitled to unpaid non-discretionary bonuses?
Similar to commission wages, certain kinds of bonuses can entitle an employee to a pro rata share of the bonus long after the employee is terminated. Nondiscretionary bonuses are those bonuses that are based on some objective measurement of performance. For example, some performance-based bonuses are grounded on the employee exceeding a minimum sales or piece quota.
Some other bonuses are paid to employees based solely on the employer’s discretion, like the traditional “holiday bonuses.” If the employer changes its mind and decides not to pay a holiday bonus for some reason, the employee generally does not have the right to demand it.
But an employee who is promised a bonus for some kind of performance often has the right to the bonus, or part of a bonus, even if the employer later decides not to pay it. In Lucien v. Allstate Trucking, which involved a promise of a bonus, the court found the promise amounted to an offer of a unilateral contract which could not be revoked after performance by the employee had begun. Thus, for example, if an employer promises to pay an employee a bonus based on an increase in sales over some period of time, once the employee begins working to increase sales, the promise may give rise to a contractual obligation to pay it.
9. Do you have unreimbursed expenses?
California Labor Code section 2802(a) states,
An employer shall indemnify his or her employee for all necessary expenditures or losses incurred by the employee in direct consequence of the discharge of his or her duties, or of his or her obedience to the directions of the employer, even though unlawful, unless the employee, at the time of obeying the directions, believed them to be unlawful.
This is the California law that requires employers to reimburse employees for expenses they incur doing their jobs, including mileage and other travel expense reimbursements and office supplies. If an employee is required to use their own cell phone for work and is not provided an alternative, then the employer needs to pay the cost of the cell phone and cell service. If the employee works from home on some days with the permission of, or at the direction of, their employer, then the employer might also be required to reimburse some or all of the cost of maintaining internet service for the home office.
It is important to note that reimbursement claims under Labor Code section 2802 cannot be waived through a severance agreement or any other agreement. As the California Supreme Court wrote in Edwards v. Arthur Andersen LLP:
California has a strong public policy that favors the indemnification (and defense) of employees by their employers for claims and liabilities resulting from the employees’ acts within the course and scope of their employment. Labor Code section 2802 codifies this policy and gives an employee a right to indemnification from his or her employer.
Finally, like most wage-related claims, Labor Code section 2802 is governed by a three-year statute of limitations. If the employee prevails on their claim for unreimbursed expenses, the employee will also be entitled to their reasonable attorneys’ fees and costs of suit.
10. Did you receive adequate payroll records?
Labor Code section 226 requires all employers to provide employees with certain information on pay stubs:
(a) An employer, semimonthly or at the time of each payment of wages, shall furnish to his or her employee, either as a detachable part of the check, draft, or voucher paying the employee’s wages, or separately if wages are paid by personal check or cash, an accurate itemized statement in writing showing (1) gross wages earned, (2) total hours worked by the employee, except as provided in subdivision (j), (3) the number of piece-rate units earned and any applicable piece rate if the employee is paid on a piece-rate basis, (4) all deductions, provided that all deductions made on written orders of the employee may be aggregated and shown as one item, (5) net wages earned, (6) the inclusive dates of the period for which the employee is paid, (7) the name of the employee and only the last four digits of his or her social security number or an employee identification number other than a social security number, (8) the name and address of the legal entity that is the employer and, if the employer is a farm labor contractor, as defined in subdivision (b) of Section 1682, the name and address of the legal entity that secured the services of the employer, and (9) all applicable hourly rates in effect during the pay period and the corresponding number of hours worked at each hourly rate by the employee …
Complete and accurate pay stubs are necessary to give employees sufficient information to confirm that they have been correctly paid. If an hourly employee receives a paystub that fails to include all required information, the employer is subject to a penalty. The penalty section of Labor Code section 226 gives employees up to $4,000 in penalties for inadequate pay stubs.
As a penalty, however, Labor Code section 226 is subject to a one-year statute of limitations.
Seeking Wage Justice
If you have been damaged by one or more of these violations at any time during the past four years, you have several options.
- The first option is that you can do nothing about the violations or the theft of your wages, and move on to a better job. “Live and learn.” This might be the right choice for some for a wide range of reasons.
- If you are still employed at the company, you should bring the violations to your supervisor’s attention, and to HR if that is an option. Do your homework and learn about the law first. Tell your employer what the issues are and ask that the issues be promptly addressed and that they keep you in loop. If the violations involve backpay, unpaid or underpaid wages, ask your employer to work with you to help evaluate how much money the company owes you. Follow-up with an email and cc yourself.
- If you are no longer employed ,or if your company refuses to address your issues or refuses to pay you the wages and penalties that are owed, you can file a wage claim with the State of California’s Division of Labor Standards Enforcement. Although the DLSE is not there to be your advocate, it is the state agency tasked with helping to enforce our wage and hour laws. You can be represented by independent counsel at the DLSE. The DLSE is often your best option if the value of your claims is low. (But, if you are unsure of how your claims add up, contact an experienced employment attorney who specializes in wage and hour law before deciding.)
- Sometimes your best option is to hire an employment attorney. An employment attorney will identify all the damages and penalties you are entitled to seek in a lawsuit, which is sometimes a surprisingly high amount. Fortunately, most wage and hour specialists charge on a contingency-fee basis. That means the law firm will advance costs and will not be entitled to a fee unless they recover on your behalf. Sometimes the greatest benefit of retaining an attorney is that you can alleviate some of anxiety and worry than comes with having your wages stolen.
If you are still employed by the company, your employer is prohibited by law from retaliating against you for raising these issues. If your employer begins to treat you more harshly or subjects you to greater scrutiny after you make your complaints, you may be the victim of retaliation. Document your concerns about retaliation and continue to point them out to the supervisor and HR if appropriate.
If you are terminated or demoted shortly after complaining about your wage rights, it would be a good time to speak with an employment attorney about retaliation. If possible, speak with an attorney before you quit or give notice that you are quitting.
Without a doubt, California employment laws are complex. They establish a wide range of obligations that are imposed on employers. For many of them, like minimum and overtime wage obligations, employers are strictly liable for violations. That means, it does not matter if the failure to pay was intentional or done by mistake. If the wages are not paid, the employer is liable.
Because wage rights are so fundamental to our rule of law, employees have significant advantages over employers in court.
First, if the employer failed to maintain an accurate record of time worked by a non-exempt employee, the employee is permitted to rest their case on estimates. The courts require employees to present reasonable estimates based on their own testimony. But the law does not make the burden of proving the numbers so difficult that it would discourage employees from making valid claims.
Second, for many wage and hour claims, an employee who wins damages at trial is entitled to their attorneys’ fees. If the employer wins, the employee is not required to pay for the fees incurred by the company defending the claim unless the court determines that the claims were brought in bad faith. This so-called “one-way-fee-shifting” gives employees a significant advantage in wage-related cases.
Third, the statute of limitations on wage claims is three years. If a claim for unfair business practices is added to the case, which we often do, adds a fourth year to the statute of limitations.
Finally, if you turn to Kitchin Legal for help with a legal issue, you can expect representation from one of the most well-qualified employment law attorneys in the San Francisco Bay Area. At Kitchin Legal, we have handled cases involving each of these issues. Our success rate over the past 20 years is nearly 100%. While no law firm can guarantee specific results, we guarantee you will receive the very best legal advice available.
If you have any questions about your employment rights, you can reach Patrick Kitchin at 415-677-9058 or by email to email@example.com.