Employment Lawsuits are Expensive and Disruptive

The cost of defending an employment lawsuit is measured in the tens of thousands of dollars.  Defending a discrimination claim through trial brought by a single employee can easily reach $100,000 in attorneys’ fees and costs of suit.  Litigation cost is a significant reason many employment cases are settled out of court.  A small class action lawsuit can cost a company in excess of a hundred thousand dollars in attorneys’ fees alone.

Lawsuits are disruptive too.  A number of employees will be involved in gathering documents.  Some of them will have their depositions taken as fact witnesses.  Key management personnel will spend a substantial amount of time working with the company’s legal team.  Workplace stress is expensive.

The fact that a lawsuit has been filed against a company creates a public record.  In many of the Superior Courts of California the complaint and other records are available online to the public.  It is likely that many  employees will have some knowledge of the lawsuit.  Workers will have questions about the case and will form opinions about the merits of the claim.  Some will ask, “do these claims apply to me too?”

These are just a few of the main reasons why it is always better to take steps to avoid employment litigation.  But how can an employer in California avoid getting sued by an employee in the first place?  Here are five tips to follow to avoid employment lawsuits.

Tip #1:  Take a Deep Dive into Labor LawPhoto of a deep sea diver symbolizing a deep dive into the law

Laws governing the employment of individuals in California are found in several places, from the Labor Code to the Insurance Code.  City and County ordinances control some aspects of wage rights within their jurisdictions. Many of these laws are summarized on the employment posters employers are required to post in the workplace.  Employment regulations also are set out in industry-specific Industrial Wage Orders, which are required to be available in the workplace.  Most of these laws are available online.

Labor laws are interpreted and explained by the Division of Labor Standards Enforcement (“DLSE”) in its Opinion Letters, the DLSE Enforcement Policies and Interpretations Manual, California appellate court decisions, California Supreme Court decisions and in a host of federal agencies like the Equal Employment Opportunities Commission.

The most efficient way to learn about applicable labor laws is to work closely with a qualified employment attorney who can identify what laws apply and explain how they operate.  But the cost of legal counsel is not always feasible for small companies.  A lot can be learned online by visiting the websites of the DLSE, the Department of Fair Employment and Housing (“DFEH”), the EEOC and employment attorneys’ blogs.  Relying on a qualified human resource professional can also be helpful.

The importance of understanding all legal requirements of employment cannot be overstated.  Wage laws are specifically drafted to protect the rights of persons working in California.  Employers are generally held strictly liable for wage and hour law violations.  This means that there are few viable defenses available to an employer.

Tip #2:  Design or Adopt Compliant Employment Policies and Procedures

Every company that employs any worker is required to have a number of specific employment policies in place.  For non-exempt hourly employees, these policies include a minimum wage policy, meal period policy, rest period policy and timekeeping policy.  All employers also are required to have a written sexual harassment and retaliation policy, a paid sick leave policy and non-discrimination policy.  In restaurants and other businesses where tips are left by customers, companies need to have a gratuities policy that complies with the California Labor Code.

Misclassifying a worker as exempt from overtime and meal and rest period rights is a costly mistake. If an employer pays any employee on a salary basis, it must develop a policy that correctly classifies the worker.   Understanding the five overtime exemptions that governing the classification of employees will reduce the chance that an employee will sue an employer for wage and hour issues.

In addition, all employers must obtain and post labor law posters that describe federal, California and local labor and work safety laws.  These are available from a variety of sources, including the California Chamber of Commerce and even Amazon. Employers must also make available industry-specific California Wage Orders to their employees.

The need to comply with labor laws begins early.  Making false promises to a job applicant can form the basis of a claim for fraudulent inducement.  If an employee moves from one place to another to take a job based on misrepresentations as to the “kind, character, or existence” of work, or the “length of time the work will last,” the employer could face double damages under Labor Code § 970.

If commissions form part of an employee’s compensation, the commission agreement must be in writing and signed by the employer and employee.  If the commission agreement does not have a legally valid forfeiture clause, an employee could be entitled to the payment of commissions long after the employee leaves the company.

Tip # 3:  Share Your Knowledge of Labor Laws with Your Workforce

After all necessary labor policies have been formulated and the applicable forms created, the next step is to use the roll-out of the policies as a teaching moment.

Group meeting is a time to review employment laws.For example, introducing a written sexual harassment and retaliation policy can be used as a tool for teaching employees the kind of behavior that violates the law and the company’s policies.  A written meal and rest period policy will help managers and hourly employees to take breaks at the appropriate times.  Signed acknowledgments on these policies makes it more difficult for an employee to later allege that they did not know their rights and obligations.

Creating a knowledgeable workforce is an effective way of lowering the risk that an employer will be sued for non-compliance with federal, California and local labor laws.


Tip # 4:  Monitor Compliance

Management-level employees are the eyes and ears of every company.  One sure way to lower the risk of being sued for labor law violations is to make sure that all managers have a clear understating of applicable labor laws.  Understanding meal period timing requirements will permit managers to identify compliance issues.

Many companies use periodic evaluations to check in with managers’ performance.  These check-ins are a great opportunity to review how labor law policies are being implemented for their department o r company unit.  For example, we know that it often is a challenge to provide all rest and meal periods to servers and bussers in  restaurants.   Putting rest and meal period on the agenda with every assistant manager can lead to creative solutions for problems.

Tip #5:  Keep Abreast of Changes in the Law

Every year new and amended employment laws come into effect.  This year new 32 California Assembly and Senate bills came into effect, including for example:

AB 51 limiting mandatory arbitration for FEHA and Labor Code claims

AB 9 extending the statute of limitation on FEHA claims

SB 188 adding “protected hairstyles” as a ground for employment discrimination

AB 5 codifying the ABC Test for independent contractors

SB 142 modifying lactation accommodation rules

In addition, California courts render decisions that can redefine employers’ obligations.  The California Supreme Court’s 2018 Dynamex Operations West decision redefined the way we determine whether someone is an employee or an independent contractor.  But, Dynamex is just one in a long line of decisions that have affected the workplace.  More are on the court’s calendar for this year.

Staying up-to-date on labor laws can require additional education, the design of new policies and procedures, additional monitoring and the modifications of existing practices.  But the cost of making these changes and following these five tips pales in comparison with the cost of defending a single labor lawsuit.

Bonus Tip # 6:  Use Severance Agreements

If the goal is to avoid lawsuits and lower a company’s litigation risks, then no discussion of litigation risk management is complete without considering the use of severance agreements with terminating employees.  California and federal laws permit employers and employees to enter into agreements that pay former employees in exchange for a waiver of many of their employment rights (but not all).  An employee can waive their right to sue an employer for wage and hour violations, discrimination, and wrongful termination, however.

Because severance agreements are not required under California law, many employers never use them.  Other employers use them as a matter of course with certain groups or classes of employees.  If an employer does not use severance agreements generally, it can still assess the risk that a specific employee could bring a viable employment claim and decide whether the risk is high enough to justify an offer of some level of severance pay in exchange for a general waiver of the right to sue.

If you have questions about your rights under California wage and hour laws, please reach out to Patrick Kitchin at 415-677-9058, or by email to prk@kitchinlegal.com