Employers need to consult with an employment attorney about their labor policies and practices at least once each year.  In this Kitchin Legal Blog, I identify 10 of the most important reasons for all employers to build a relationship with an experienced employment attorney.

What are the Risks?

Every business with workers is subject to the risk that it will be sued by one of them at some point.  Often seen as a “cost of business,” employment lawsuits in California cost employers millions of dollars each year in avoidable costs.  They are expensive to defend, disruptive of business operations and extraordinarily stressful on everyone.

Potential employment-related claims every employer in California faces is staggering. They include claims based on allegations of:

The good news is that the risk of these kinds of employment lawsuits can be managed.  Proper employment policies can reduce the likelihood that any employee will be incentivized to sue an employer for wages or other benefits of employment through the litigation process.

What is the Role of an Employment Attorney?

When advising an employer, an employment attorney’s role is to help the company: (1) assess its current employment policies and practices; (2) modify policies and practices as necessary; and (3) devise communication strategies for addressing employee questions and concerns.  Each of these three functions works together to minimize employment litigation risks.

10 Reasons an Employer Needs an Employment Law Firm

1. California employments laws are complex.

California employment laws are contained within the California Constitution, California Labor Code, 17 separate Industrial Welfare Commission Wage Orders, hundreds of city and county ordinances like the San Francisco Administrative Code, the Fair Employment and Housing Act, the Workers Compensation Act, the Unemployment Insurance Code and the California Family Rights Act.  The application of these codified laws, among others, is interpreted by six California appellate courts, four federal district courts, the California Supreme Court and the Ninth Circuit Court of Appeals.  The California Division of Labor Standards Enforcement also interprets California wage and hour laws in a series of opinion letters that have been issued over the decades.  Finally, federal laws govern the employment of persons across the country, including in California, and they are contained in a wide range of complicated United States Code titles and Federal Regulations.

While most employment attorneys do not specialize in each of these areas of law, competent counsels should be fairly well acquainted and conversant in all of them.  If an employer does not have any questions about these diverse areas of law, it is likely the employer does not know what questions to ask.

2.  Employees are becoming increasingly knowledgeable about their employment rights.

Employees in California are developing a sophisticated understanding of their employment rights.  Social media posts, comprehensive information posted on thousands of private and governmental internet sites and traditional media sources give employees access to comprehensive information about their rights.  Though in my experience, employees often misinterpret the scope of their rights and the obligations of their employers, they know they can have their questions and concerns carefully reviewed by dozens of employment attorneys eager to work with them.

Because employers are required by law to abide by all employment laws, they need to gain a deep understanding of these laws to ensure they are in compliance with all of them.

3.  Every year new employment laws are added to the books and new appellate courts are issued that interpret California and federal employment laws.

In 2019, by way of example, California passed new labor laws that increased the minimum wage, placed restrictions on confidentiality of sexual harassment and discrimination settlements, instituted new sexual harassment training requirements, redefined “hostile work environment” under the California Fair Employment and Housing Act, increased requirements for lactation requirements and expanded paid family leave rights.  Many other laws were added and/or modified as well.

Appellate courts, including the Supreme Court of California, also publish decisions that directly impact the workplace.  In 2018, for example, the California Supreme Court issued its decision in the Dynamex case that implemented the “ABC Test” for classifying employees.  This year, the California Legislature passed AB-5, which codifies the ABC Test for most workers in California.

It is not feasible for most employers to stay abreast of these changes.  But it is the job of employment attorneys to do so.

4.  Human resource professionals are knowledgeable about a broad range of labor issues, but they are not a substitute for the guidance of an experienced and knowledgeable employment attorney.

Many employers do not have the luxury of having a human resource professional on staff.  When an HR professional is available, they typically serve a wide range of functions, including recruitment, workplace safety, employee relations, compensation planning, leaves of absence, labor law compliance and training.   Although labor law compliance is an important HR function, it would be unusual for an HR professional in most companies to maintain an intimate understanding of all laws affecting the workplace.

An employment attorney is an important resource for human resources and ideally should be available to consult on issues that are beyond the expertise of the in-house HR professional.

5.  Misclassifying a worker as an independent contractor can result in a very expensive lawsuit.

It always has been risky to classify a person performing work within the scope of one’s business as an independent contractor in California.  That risk increased exponentially following the California Supreme Court’s 2018 decision in Dynamex and the California Legislature’s passage of AB-5 in 2019.

Employers continue to classify workers as independent contractors in a wide range of industries, from restaurants to fitness studios.  An experienced employment attorney will help employers make the correct classification decisions and thereby help employers avoid misclassification lawsuits.

Employee misclassification lawsuits are very attractive to plaintiffs’ attorneys because they typically include claims for violations of laws regarding minimum wages, overtime wages, record keeping requirements, and meal and rest period violations.  With the exception of meal and rest period claims, the other claims permit the employee’s attorney to seek their attorneys’ fees.  They can be relatively easy claims to prove and valuable.

Class action lawsuits that involve a number of workers alleged to be misclassified as independent contractors will become even more common than they are today as independent contractors.  Defending against these kinds of misclassification lawsuits can cost hundreds of thousands of dollars.

6.  California’s Labor Code Private Attorneys General Act representative lawsuits are on the rise.

The Labor Code Private Attorneys General Act or “PAGA” is a lawsuit brought on behalf of the State of California and other employees by a private litigant.  Unlike class actions that require a sufficient number of employees to justify the use of the class action process, PAGA lawsuits do not require the plaintiff to establish “numerosity.”  In class action lawsuits, the court determines if there are a sufficient number of similarly-situated persons to justify class certification.  PAGA actions can be brought by one person on behalf of the State, themselves and one other person.  PAGA case are therefore easier to bring and maintain.

In addition, while class action waivers have been repeatedly upheld in California, PAGA claims are not subject to waiver.  An employment attorney can help a company ensure that its employment practices do not place it at substantial risk of a PAGA lawsuit.

7.  Misclassifying an employee as exempt from overtime has serious consequences.

One of the most misunderstood concepts in California employment law concerns whether an employee is exempt or non-exempt from overtime pay.  Unlike the Fair Labor Standards Act, California does not have a highly compensated exemption.  So, even if a company pays an employee over $100,000 a year, they are entitled to overtime wages unless they qualify for one of the five overtime exemptions set out in the California Industrial Wage Commission Wage Orders:  Executive, Administrative, Professional, Inside Sales and Outside Sales.

The consequence of misclassification can be significant and the cost of defending the company against a misclassification case can expose the employer to significant liability.

8.  Employee lawsuits are expensive and disruptive.

Whether filed as individual claims or as a group, class or representative action, employee lawsuits are extraordinarily expensive and disruptive of business operations.   Although Employment Practices Liability Insurance, if purchased, covers claims for wrongful termination, discrimination, sexual harassment and retaliation, generally they do not often cover claims for violations of wage rights—so-called “wage and hour lawsuits.”

While each employment lawsuit is unique in many ways, they share common features.  First, they cost significant money to defend.  Second, they often require co-employees to provide information and/or to testify at deposition.  Third, they create a public record of the employee’s claims.  Fourth, other employees often confer with the claimant’s attorneys and sometimes file similar lawsuits.  Fifth, almost all of them settle before trial.

9.  Regulatory authorities are watching.

The Internal Revenue Service, the California Franchise Tax Board, the California Employment Development Department, the United States Department of Labor and numerous city and county agencies like the San Francisco Office of Labor Standards Enforcement have the power to audit employers to determine whether employers are operating in compliance with their regulations.

While employee lawsuits are expensive and disruptive to a business, governmental audits can be devastatingly expensive and burdensome.  An experienced employment attorney can help a company avoid and if necessary, to respond to governmental audits.

10.  Directors, officers and business owners can be held personally liable for many employment claims.

At least with respect to smaller companies facing wage and hour lawsuits and PAGA claims, it is common for the employee’s attorneys to include business directors, officers and owners as individually-named defendants.  California Labor Code § 558.1 states:

(a) Any employer or other person acting on behalf of an employer, who violates, or causes to be violated, any provision regulating minimum wages or hours and days of work in any order of the Industrial Welfare Commission, or violates, or causes to be violated, Sections 203, 226, 226.7, 1193.6, 1194, or 2802, may be held liable as the employer for such violation.

(b) For purposes of this section, the term “other person acting on behalf of an employer” is limited to a natural person who is an owner, director, officer, or managing agent of the employer, and the term “managing agent” has the same meaning as in subdivision (b) of Section 3294 of the Civil Code.

For this reason alone, business owners should be highly motivated to make certain they are complying with California’s wage and hour laws.  The best way to do that is to work with an employment attorney versed in the laws that control the rights and obligations of employers and employees.

The Takeaway

Many companies, particularly start-ups, focus on revenue and profitability, and fail to carefully assess legal requirements governing the employment of their workforces.  Clearly, every business must focus on improving, marketing and selling the products or services the company provides.  Otherwise, the business will not remain in operation for long.

At the same time, however, business owners must make certain they are operating in compliance with the myriad legal requirements established under California, federal and local laws for their employees.  Failing to comply with labor laws almost always has adverse consequences.

At one end of the spectrum, companies find themselves with workers who are more likely to quit and seek out employment with other companies that provide them with everything required under the law.  Frequent employee turnover at restaurants and hair salons, for example, is often based on the failure of business to enact and enforce compliant employment policies.  Frequent turnover is not good for any business.  Employees are truly the most valuable “assets” a business has.

At the other end of the spectrum, companies that fail to understand and comply with employment laws find themselves the target of employment lawsuits.  It is important to understand that employment lawyers who represent workers are in the business of suing companies for damages, penalties and attorneys’ fees.  Nothing is better for that business than the continued existence of employers who fail to abide by employment laws.  Management can help shield their companies from becoming part of the employment litigation business by engaging an employment law firm to closely evaluate their employment policies and practices.

When it comes to the retention of an employment lawyer, Benjamin Franklin’s saying is apropos: “An ounce of prevention is worth a pound of cure.”  With a little time and money, and the right employment attorney, any company can significantly lower its risk of costly and disruptive litigation.

Please reach out to Patrick Kitchin at 415-677-9058 or by email to prk@kitchinlegal.com.