In most layoff situations, especially these days, the layoff is legitimate and a necessary evil in cutting costs.  However, just because an employee has not been wrongfully terminated in a layoff does not mean they have no California employment law rights.  One common example is receiving all unpaid vacation pay.

Vacation Pay

Under California employment laws, once employees have accrued vacation time, they must either be allowed to use it to take time off or have it paid out at termination.  This is commonly referred to as California's "no use-it-or-lose-it" rule.

Employees should also be aware that even if an employer calls it "Paid Time Off (PTO)" or a "personal day" instead of "vacation" it most likely must still be paid out.  Under California law, vacation pay is defined as any hours an employer provides an employee to take off for any reason.

One example of something which might not qualify as vacation pay is sick pay, which most employers only allow use of when an employee is sick.  Otherwise, most forms of PTO is the same thing as vacation pay.

Payment Must Be Made on Exact Termination Date

Whether you are owed accrued vacation pay, hourly wages, salary, commissions, or some other form of wages, an employer who terminates an employee MUST pay ALL money out on the last day of employment-no exceptions.

If this is not done, then an employee is entitled to "waiting time" penalties equal to one day of wages for each day the wages remain unpaid, including weekends and holidays, up to a maximum of thirty days.  These issues come into play even where the employer does not dispute that the employee is owed money.  For example, if the employer puts the check in the mail or does not pay all of the wages until the next payday, the employee is automatically entitled to penalties from their last day until they actually receive the check.

For example, if your employer does not pay out all of your vacation pay and you make $60,000 per year, after thirty days you would be entitled to approximately $7,000 in penalties even if the vacation is eventually paid out to you.

These are tough times for many laid-off employees.  They should make sure they receive all of the wages they are owed, since every dollar counts in making it through their unemployment.

Over the past couple of months I have been dealing with a case against a major national bank on behalf of one of its former employees.  The case involves his "discretionary" annual bonus, which most employers would say is just that-discretionary.  However, the term discretionary is misleading because except in some very limited circumstances a party to a contract does not have absolute discretion.

This is because all contracts in California have an "implied covenant of good faith and fair dealing".  This is one of the least sexy concepts in contract or employment law, so I will summarize it quickly.  This doctrine acts as a check on parties in contracts where one side has the right to exercise broad discretion that effects the other party's rights.  The law says that in such a case when the party exercises their discretion it generally must be done "fairly".

This is especially important in our case because on Wall Street investment bankers and other professionals are usually paid a (relatively) small salary and then an extremely large annual bonus at the end of the year.  In our case, the employee was used to making over $750,000 and suddenly his employer decided at the end of last year to give him a bonus of less than $50,000 for 2007 with no warning whatsoever and despite the fact that he was performing better than his peers.

It turns out that the employer was planning to lay him off in a few weeks, so they decided to give his usual bonus to his co-workers.  This is the classic case where the implied covenant comes up in California employment law cases.  If an employee performs acceptable work during the year with the expectation that he would receive a bonus similar to his peers and what he received in prior years, the employer does not exercise discretion in "good faith" by paying him hundreds of thousands of dollars less than they do to similar employees.

This might be an extreme case for most employees, but the same concepts can be applied to any bonus and even Christmas bonuses in certain circumstances.

This post is part of our ongoing series dealing with "family status" discrimination.  Family status claims implicate several employment laws, depending on the facts of a given case.  For example, the federal Equal Pay Act ("EPA") and also California law mandate "equal pay" between men and women.

The fact that women disproportionately care for children in the United States is likely a direct contributor to the fact that women still tend to make less money for doing the same work, despite the EPA and other laws.  This is because such discrimination is often subtle.

For example, a woman might take time off to care for children and when she returns to work make less money than her male counterparts because they have more "seniority".  While this might be legitimate, "seniority" is sometimes used as a synonym for "loyalty" or "dependability" in reference to the possibility of the woman leaving again to have another child or as punishment for leaving before.

Additionally, mothers who remain in the workforce after having children often start working part-time hours and the other employees often receive a higher rate of pay for "full-time" work.  Reducing a part-time worker's salary is not per se illegal, but there are certainly pitfalls.  For example, if mothers who switch to part-time have their salary reduced, then it still must be comparable to part-time male workers.  Also, if a woman cuts her hours by 50% and her pay is reduced by 70%, then it can be argued she is being "penalized" for working less.

While not always illegal, an employer would likely have to prove that this is the same rate ALL part-time workers have their wages reduced by and/or that there is a legitimate business reason for doing so.

It is fairly common for sweeping employment law legislation to be introduced in the California legislature and I usually do not pay much attention to these bills because they usually do not become law.

One of two things almost always happens: (1) the republicans introduce a pro-employer bill that will never pass the democratically-controlled legislature or (2) the democrats introduce a pro-employee bill that passes but is then vetoed by Governor Schwarzenegger.

However, I gave an interview to a reporter this past week for law360.com to discuss some recently-introduced legislation aimed at severely limiting employees' rights to meal periods in California that led me to some interesting discoveries.

In researching one of the bills, SB 1192, which was introduced by State Senator Bob Margett on February 12, 2008, I was reminded why I try to ignore these bills, the people who introduce them and the political process in general.

The Details of SB 1192

SB 1192 proposes the following changes to existing law:

SOL Change

The bill changes the statute of limitations for recovering penalties for missed meal periods from four years (under Murphy v. Kenneth Cole) to one year. This would severely limit employees' right to recovery, which means an employer would have a lot less to lose by breaking the law.

The penalty is one hour of pay for each break not provided, but presumably an employer makes much more profit from one hour of an employee's work than they pay the employee. Therefore, employers might be willing to risk having to pay more later for that work.

For example, if an employee brings a lawsuit to recover one year of missed meal periods, the employer might have to pay another $12 of pay to an employee for each day worked that year, because they made $30 of profit from that hour of work by the employee.

Violation of California meal period laws is widespread, but only a small minority of employees do anything about it, which makes the small risk of paying one year of penalties worthwhile to an employer.

However, if faced with four years of penalties, an employer might think twice about taking the risk.

Anti-Employee Definition of "Provide"

SB 1192 modifies the law to state that an employer is only required to make a rest period available "without interfering with its use".

Under this interpretation, employers will argue that if an employee signs a document when they begin employment saying "you are provided with a lunch break" then their obligation is met.

Unless the employer actively prevents the employee from taking the break, such as instructing them not to take a lunch break they are in the clear. This would put the onus on employees who are too busy to take a lunch break to complain about it to their employer in order to get any relief.

Often employers are well aware that the requirements they place on employees mean that taking a lunch break is out of the question. However, they also know that employees are hesitant to complain about the situation because they do not want to seem like a "slacker" or "lazy", so they work through their lunch breaks.

Time for Taking Break Expanded

This bill changes the law to state that lunch breaks may be given "commencing at any time before the start of the sixth hour of work".

This would seem to allow employers to mandate that employees take their lunch breaks immediately upon starting work. Essentially employers would be able to get away with telling their employees to come to work 1/2 later than normal and count that as their meal period.

This change completely negates the rationale behind requiring employers to provide meal breaks in the first place.

Purpose of SB 1192 Misrepresented to the Public

After introducing the legislation, Senator Margett issued a press release entitled "Senator Margett Calls for Flexibility In Meal Periods For All California Employees and Employers".

The release only mentions the last change discussed above regarding the timing of meal periods and totally misrepresents its effect. He tries to pass this off as a bill that has the sole purpose of allowing employees to take their meal period during their 5th hour of work instead of before the 5th hour, which current law requires in most situations.

The Senator repeatedly tries to make it sound like the only reason he introduced SB 1192 is that "too many employees must take their lunch breaks at unreasonable hours". In fact, as I outlined above, this bill has the opposite effect, allowing employers to require that breaks be taken at unreasonable hours.

Senator Margett has essentially told the public he introduced a bill that expands employees' rights when it really destroys the rights they have under current law.

Yesterday the California Supreme Court issued its decision in Gattuso v. Harte-Hanks Shoppers, Inc., ruling that employers may reimburse employee expenses in the form of "additional wages" payable in a "lump sum" instead of reimbursing each separate expense for the exact amount incurred.

This case deals with a scenario common to sales employees where the employer simply gives the employee a set automobile "allowance" or a "per diem" payment that is meant to cover the employee's mileage expenses, etc. instead of having the employee submit expense reimbursement requests.

The Plaintiff in Gattuso argued that this was not an allowable method of expense reimbursement and that the payments must be made separately from wages.

Expenses Still Must Be Reimbursed Fully

Under Labor Code section 2802, employers must reimburse all expenses the employee pays for out-of-pocket in carrying out their duties. This includes mileage driven in their own automobile and gas put into a company car. Labor Code section 2804 further states that an employer and employee cannot agree to waive this reimbursement requirement.

The Court held that the employer still must make clear what portion of the salary or commission payments is meant to reimburse the employee for expenses versus compensation for the work performed.

This is because if the amount meant to cover expenses is not enough to cover the actual amount of expenses incurred during a pay period, the employer must pay the employee additional money to make up the difference.

The "Lump Sum" Method is Not for the Lazy Employer

I think that many employers use the "lump sum" method out of laziness, because they (understandably) do not want to process expense reports and write separate checks in varying amounts each month. The employer in Gattuso actually took this a step further and simply increased the employees' commissions by a certain amount to cover expenses.

"Lazy" employers probably should not use this method, however, because regardless of what they pay the employee to cover expenses each month, the employer still has a duty under section 2802 to fully reimburse employees for expenses.

So, the employer has to make sure they pay the employee any additional money owed above and beyond the "lump sum" payment, but they presumably are no longer requiring employees to submit expense reports, so they are unable to determine if they have paid enough.

These employers will have the logistical nightmare of trying to "guess" whether they are complying with the law. The only way to be sure is to have employees submit expense reports each month, compare the totals to the "lump sum" payments and pay out additional monies for any extra reimbursements owed.

By this point, the whole point of using the "lump sum" method has been defeated. For an employer who uses the "lump sum" method and is meticulous in complying with the law, the only difference is that most months employees get a windfall in the form of extra wages if they incur expenses totaling less than their "lump sum".

Gattuso Does Not Change Much

Gattuso does not really change anything under California law, except in clarifying that this "lump sum" payment method is indeed legal.

All California employers (and out-of-state employers with California employees) must still fully reimburse all employees for any and all expenses incurred on the employer's behalf.

Some Income Tax Implications are Unknown

If your employer does use this method to reimburse you for expenses incurred, it might be a good idea to point this out to your accountant or tax attorney because the difference between "wages" and "expense reimbursement" affects California withholding rights and obligations, as well as income tax liability.

As explained in various posts on this blog, California employees are presumed to deserve overtime pay for any hours worked over 40 in one week or 8 in one day, even if they are paid a salary, unless the employer can prove that an exemption to that rule applies.

The "computer software professionals" exemption is rarely used successfully by employers in overtime cases and such employees are usually non-exempt employees.

One of the reasons that this exemption is so rare is that the employee must make at least $49.77 per hour (adjusted for inflation each year), which based on a 40-hour week translates to $103,521.60 per year.

California just made the unprecedented decision to dramatically lower this threshold to $36 per hour, or $74,880 per year based on a 40-hour week, effective January 1, 2008.

This exemption will still be difficult for employers to satisfy, because most of these employees do not work a 40-hour week, so the $36 per hour threshold will still be unsatisfied if the employee is not paid a substantial amount of money.

For example, if an employee is paid a salary of $90,000 per year, but works 50 hours per week, the employee is essentially only being paid $34.62 per hour, so the exemption would not apply. In this example, the employee would have a substantial (and relatively simple) case for unpaid overtime.

As a basic rule of thumb, if you are a computer professional in California being paid a salary and working overtime, your employer likely owes you some unpaid overtime and you should contact an attorney as soon as possible to learn what rights you have.

As the end of the year approached, Governor Schwarzenegger vetoed several employee protections the California legislature passed in 2007. While he felt it was important to give full protections to military spouses whose husbands or wives were on leave, he deemed other employees to be less deserving of similar rights.

This is the first in a series of posts on several important employee rights bills that the legislature passed this year, but the Governor vetoed last month.

AB 1707

Assembly Bill 1707 created a $750 penalty provision against employers who refuse to provide employees access to their personnel files.

Employees in California have a statutory right to view almost anything in their personnel files. However, there has never been any penalty in place for employers who refuse to comply with this law.

If an employer refuses to grant access to the employee's file, the employee could bring a lawsuit, but other than ordering the employer to open the records, the court has not real power to punish employers who willfully break this law.

This modest penalty would have provided an employer with more incentive to comply with the law, but since the bill was vetoed employees are left with no threat of any monetary penalty to use against employers who know they really have nothing to lose for refusing to follow the law.

AB 435

Assembly Bill 435 is similar to AB1707. It was a bill that proposed allowing employees to recover double damages from their employers if they do not pay their employees the minimum wage.

Like the law granting access to personnel files, California's minimum wage law allows employees to sue to recover their unpaid wages, but there is no additional penalty they can recover from their employer if they win.

Essentially, the law is currently set up so that an employee who is already making less than minimum wage to begin with must pay an attorney to sue in court and recover their wages, with nothing extra awarded for their trouble (and no further penalty to the employer for not paying).

This law was an attempt by the legislature to provide for stiff penalties against employers who prey on the employees who need the money the most (sometimes not paying their employees at all), but apparently Mr. Schwarzenegger believed no such penalties were needed under the law.

Q: My employer pays me at one rate of pay for my regular work, but then pays me minimum wage for travel and attending seminars after-hours. How is my overtime supposed to be calculated?

--Bad at Math (CA)

A: Calculating overtime for an hourly employee who is paid at two separate hourly rates is a fairly complicated analysis and does not come up very often, but hopefully the explanation below makes some sense to you. If you need more help understanding the calculation, please feel free to contact me.

Introduction to the "Regular Rate" (versus the "Base Rate")

An employee's "regular rate" of pay is a legal term for the number used to calculate their "overtime rate" of pay, which is either 1.5 or 2 times the "regular rate," depending on how many hours are worked.

What I call the "base rate" of compensation is the typical rate at which you are paid in a regular day, week or hour of work, whether at an hourly rate, salary, commissions, etc.

Some people get confused by the term "regular rate" and mistake it as a synonym for what I call the "base rate". However, the "regular rate" is only used to calculate the "overtime rate". It really has no other purpose and often bears little resemblance to an employee's actual "regular wages".

In fact, the "regular rate" can often differ greatly from the "base rate," as explained below.

Calculation of "Regular Rate" for Hourly Employees

For hourly employees, the "regular rate" is determined by taking all of the money an employee is paid in any given week and dividing it by the total number of hours worked that week.

The Usual Situation

Hourly employees are usually paid just a straight hourly rate for their "base rate". So, for most hourly employees their "regular rate" is the same as their "base rate".

• Employee is Paid $15 per hour ("base rate")
• ($15/hr X 45 hours=$675)/45=$15 ("regular rate")

For purposes of this example, we will assume that he employee worked 40 regular hours and 5 overtime hours. To calculate overtime pay, the "regular rate" is multiplied by 1.5 to determine the "overtime rate", which in this example would be $22.50.

The most common way to calculate overtime in this situation is to multiply the "base rate" by 40 hours to get the employee's "regular pay" ($600), multiply the "overtime rate" by 5 to get their "overtime pay" ($112.50), and add the two figures together ($712.50) to calculate the wages owed.

However, this is not technically correct, because what the law says is that the employee is entitled to additional "premium pay" for overtime hours worked. So really the way this should be calculated is to multiply the number of hours worked by the "base rate" ($675) and then multiply the 5 overtime hours by the difference between the "overtime rate" and the "regular rate" ($7.50) to determine the additional "premium pay" owed and add the two figures together ($712.50) to calculate the wages owed.

The reason you must subtract the "base rate" from the "overtime rate" is because the employee has already been compensated partially for the overtime hours worked at the "base rate".

While both methods seem to work in this example, the reason the longer version is correct becomes apparent from the next example.

The Complicated Situation

When an employee is paid at two different hourly rates for different tasks, the employer must calculate the "regular rate" using a "weighted average" of the different hourly rates.

Using the same example above, assume that the employee is paid $10 per hour for time spent doing janitorial duties at a retail sales job and that the first 40 hours of the week were spent doing sales work at $15 per hour and the last 5 were spent doing janitorial work.

First, calculate the "regular rate," which is done the same as above--by adding all of the money earned by that employee for the week and dividing it by the number of hours worked:

• [($10/hr X 5 hours=$50)+($15/hr X 40 hours=$600)]/45=$14.44

Second, calculate the "overtime rate" by multiplying the "regular rate" by 1.5 ($21.67). Finally, calculate the "overtime pay" by taking the difference between the "overtime rate" ($21.67) and the "base rate" for the overtime hours ($10.00) and multiply that number ($11.67) by the number of overtime hours worked (5) to determine the additional "premium pay" owed ($58.35).

The total pay for this week should be $708.35.

Again, I know this analysis is complicated, but if you have any questions about whether you are being paid overtime correctly, you should contact an employment law attorney.

Yesterday, it was reported that Wal-Mart had reached a settlement with the Department of Labor to settle unpaid overtime claims by its employees.

The odd thing about this settlement is that Wal-Mart turned itself in to the Department of Labor and negotiated a quick settlement with the government and the employees had no say in what they settled for.

Apparently, the settlement included absolutely NO penalties, NO interest and it is unclear whether the employees are even getting anywhere near what they are actually owed in unpaid overtime.

A case where an employer admits they broke the law and turns themselves in for it would usually be an easy case to win. Also, federal law allows courts to double the amount of overtime wages due as a penalty for not paying those wages in the first place. It looks as though these employees are actually receiving less than half of what they are owed.

The California labor commissioner is now apparently negotiating with Wal-Mart to settle overtime claims against the company under California law. It would be in these employees' best interest to seek out their own personal legal counsel so that they get every penny they deserve.

Thank you to Wake Up Wal-Mart for the additional information.

Although this series on commissioned salespeople and overtime might not be the most exciting employment law topic, for those with large unpaid claims, it probably is the most exciting. I leave this topic with the following points.

Minimum Wage Test

The final test that must be met before commissioned salespeople can be considered "exempt" from overtime wages is the "minimum wage" test.

Each week a commissioned salesperson must make at least 1.5 times the California minimum wage. Otherwise, they are automatically considered non-exempt for that week.

For employees with low "base" pay or those who are paid 100% commission, this puts the unwelcome burden on employers of paying overtime to those salespeople who are not very good at their job and do not make any commissions for the week.

However, many employers simply pay a "base" rate of 1.5 times the minimum wage to stop this from happening in the first place.

Must Actually "Sell"

Some employees have "sales support" positions. They are the ones who actually install the product or provide technical support for the salespeople but do not actually "sell" to the customer.

This probably should just go without saying, but in order to be classified as "exempt" for being a commissioned salesperson, you actually have to be "selling" something.

Common Misclassifications in California

Some of the professions that are most often misclassified include the following groups:

• Financial Planners
• Stock Brokers
• Mortgage Brokers
• Other Financial Industry Salespeople
• Those who provide "sales support" but do not actually sell, and
• Commercial Equipment Salespeople

If you belong to one of these professions, you very well may have a large unpaid wages claim to pursue!

Even if you meet the criteria to be classified as "exempt" from overtime pay as a commissioned salesperson, the business your employer is engaged in can also automatically qualify you for overtime, regardless of how you are paid.

Commissioned salespeople can only be "exempt" if their employer is a "retail or service establishment". Whether your employer qualifies is very complicated and there might not even be a straight answer.

Basically it comes down to the question of whether what your employer sells is often sold at "retail". This is opposed to "wholesale," although that does not shed much light on things, either.

The basic test (to which there are many exceptions) is whether the type of product your employer is selling is something sold to the general public, as opposed to other businesses.

One of the best examples from my own experience is a client who sold those self-checkout kiosks you see in grocery stores, Home Depot, etc. This was all his company sold, so this was pretty much a "slam dunk" that his employer was not a "retail or service establishment" and he had overtime claims exceeding $100,000 per year.

An example from the other extreme would be electronics salespeople in stores like Best Buy or Circuit City. These salespeople really only sell to the general public, so their employer clearly is a "retail or service establishment".

In order for an employee to qualify as "exempt" from overtime pay as a commissioned salesperson, the main test that must be met is the employee MUST make more than 50% of their wages in the form of "commissions". This test is not as straightforward as it might sound at first.

What are "commissions"?

Many employees receive what their employers call "commissions" as part of their wages each pay period, but few give thought to what this term actually means.

Under California law the term has a specific definition. It means wages an employee receives that are calculated as a percentage of the purchase price of the good or service sold.

So, for example, if you receive a set amount of money for each item you sell, no matter how much you sell it for, these wages are NOT commissions under California law. These types of wages are considered along the lines of a "bonus" in California, not "commissions".

So, any wages an employer calls "commissions" that do not meet this test cannot be counted towards the 50% commissions threshold.

If a salesperson is paid a base amount plus these types of "commissions," that employee is almost certainly entitled to overtime pay.

How is the 50% measured?

It is not totally clear under California law what time period is used to measure whether an employee makes more than 50% in commission pay.

Arguably the measurement is week-to-week, so an employee may be considered "exempt" one week and "non-exempt" the next.

The representative period likely depends on the sales-cycle of a particular industry, but if your commissions dramatically go up and down from one pay period to the next, there is at least a strong argument that you are owed at least some unpaid overtime.

Hopefully you are starting to see how complicated this exemption can get and how it can be very difficult for employers to squeeze their salespeople into its parameters.

This is the first in a series of posts dealing specifically with the issue of commissioned salespeople and unpaid overtime. This is an area most employees, many employers, and even a large percentage of California attorneys do not understand correctly.

Top salespeople often make a very comfortable living and never even think about whether they are legally entitled to overtime pay.

Usually only salespeople who are wrongfully terminated or seek legal advice for other reasons ever recover these amounts because a lawyer tells them about their claims.

If you are a salesperson, these posts are required reading, because you might be getting cheated out of some very substantial amounts of wages, regardless of how much money you are making in regular wages.

"Commissioned" DOES NOT Equal "Exempt"

Many salespeople assume because they are "commissioned" they are not entitled to overtime. However, whether or not a salesperson is truly "commissioned" is determined by a complicated legal analysis.

Further, even if a salesperson is "commissioned," this is only one of many requirements that must be met before an employer can treat an employee as truly "exempt" from overtime pay.

Hopefully this series will help some of these employees realize their current (or former) employers owe them some substantial wages that might be worth pursuing.

"I make a good living--why should I care about getting overtime, too?"

For those who have not been following this blog, it would be helpful for you to review my earlier posts on common mistakes employers make in calculating the rate of overtime pay and the number of overtime hours worked to see just how much money might be owed.

It is not unheard of for salespeople to be owed hundreds of thousands of dollars if they work enough overtime, make enough money in regular wages and have worked for their employer long enough.

These employees are getting cheated out of their wages either because their employers are ignorant of the law or the employers are happily pocketing these extra wages because the employees do not know their rights. Either way, the employees are legally entitled to these earned, but unpaid wages.

The next few posts will deal with determining whether or not a salesperson is entitled to unpaid overtime wages. In my experience, many of them are.

Employers and employees are often confused about how many hours an employee must work before overtime must be paid. California law is more complicated than most states on this point, but it is also much more generous to employees than most.

Employers must pay all non-exempt employees overtime at the rate of time-and-one-half for all hours worked:

1) Over 40 in one week,

2) Over 8 in one day, and

3) For hours 1-8 on the seventh-consecutive workday in a workweek.

Employers also must pay employees double time for all hours worked:

1) Over 12 in one day, and

2) Over 8 on the seventh-consecutive workday.

The math can get a little tricky here, which is where many employers violate the law and over time these "little" mistakes, such as ignoring double-time pay for certain hours, can add up to "big" liability.

There is an exception to this rule for "make up time". If an employee wishes to miss part of one day of work and then "make it up" the next day or later in the week, these hours do not count as overtime even if they are more than 8 in one day.

However, permission to "make up" time must be requested in writing before-the-fact and an employer cannot coerce an employee into making such a request.

Employers, either through ignorance or intentionally, often make big mistakes in calculating overtime rates of pay for their employees and these often turn into big claims by the employees for unpaid wages later on.

Overtime Rate NOT Just 1.5 Times Hourly Rate

To calculate an employee's "overtime rate" of pay, you first have to calculate their "regular rate" of pay, which is the number multiplied by 1.5 to get an "overtime rate".

Most employers do not include commissions, bonuses and other additional money an employer earns in calculating the employee's "regular rate" for overtime purposes.  Employers usually just take the employee's hourly rate, multiply it by 1.5 and use that as the overtime rate.

However, under California law the "regular rate" is generally calculated by taking all of an employee's regular wages (hourly pay, salary, bonuses, commissions, etc.) earned in a given week and dividing it by 40.  The overtime rate is then multiplied by 1.5.

This can make a very big difference in how much money an employee gets paid in overtime.

An Example

Assume a salesperson makes $24 per hour as a "base", makes an additional $1,000 per week in commissions and works 20 hours of overtime each week.

This person's employer most likely calculates his overtime pay by taking his hourly rate ($24) and multiplying it by 1.5 to arrive at an overtime rate of $36 per hour.  This equals $720 of overtime pay each week, or $37,440 per year.

What the employer should do is take the regular hourly pay for the week ($24 X 40 hours=$960) and add it to the commissions earned ($1,000) to arrive at the total weekly pay ($1,960).  This number should then be divided by 40 to arrive at a "regular rate" of $49.  This is multiplied by 1.5 for an overtime rate of $73.50 per hour.  This means the employee should be receiving $1,470 of overtime pay each week, or $76,440 per year.

So, each year this employer is getting away with paying the employee $39,000 less than he is legally entitled to!  Employees in California are entitled to recover up to four years of unpaid wages, which in this case equals roughly  $156,000.

Assuming there are ten such salespeople working for a company, this quickly adds up to over $1.5 Million over four years.

Defense attorneys for large corporations in California have been trumpeting the case of In re Farmers Ins. Exch., 466 F.3d 853 (9th Cir. 2006) for the proposition that insurance claims adjusters are now exempt employees who are not entitled to overtime pay. However, this is not true when it comes to employees in California.

Case Brought in Oregon

Although the case is a 9th Circuit opinion, the case was brought in Oregon. Sometimes in California we forget that there are other states in the 9th Circuit besides us. As it happens, none of the Plaintiffs had a connection to California.

Case Decided Under Federal Law

This case was not only brought in another state, but also under federal (not state) overtime laws.

In 2004, the Bush Administration's Department of Labor issued new federal overtime regulations that were very anti-employee, resulting in many employees being re-classified as exempt from overtime pay.

Under these new laws, the employees who brought the In re Farmers Ins. case lost their case.

Ruling Does Not Effect California Employees

For virtually all intents and purposes, the In re Farmers Ins. case (and the 2004 change in federal law) does not affect the rights of California employees to overtime pay.

This is because California law is much more employee-friendly when it comes to guaranteeing overtime for most employees. Many employees who would be considered exempt under federal law are clearly non-exempt under California law.

The case of Bell v. Farmers Ins. Exchange, 115 Cal.App.4th 715 (2004) came to the opposite conclusion as the Court in In re Farmers Ins. While the defendant in both cases was actually the same company, the Bell case was decided based on California law (not federal).

So, in California insurance claims adjusters (and most other employees) are still entitled to overtime pay, despite what you may have read elsewhere.

On January 1, 2007, California increased its minimum wage from $6.75 to $7.50 per hour.

Putting aside the fact that an extra 75 cents for each hour worked really has no effect on people's lives (just $1,560 per year before taxes), there are some "side effects" of this increase employees should be aware of.

Background

Under California law, the presumption is that all employees must receive overtime pay at 1.5 times their hourly rate. There are "exemptions" to this rule for employees who do certain jobs, such as managers, administrators, some commissioned salespeople and some professionals.

However, the "duties test" (what an employee actually does at work) is only one element that MUST be satisfied to determine if an employee is supposed to receive overtime.

The other major test that MUST be satisfied is the "salary basis" test. This test is two-fold. First, an employee must be paid on a salary basis, meaning they receive a set amount of pay each week no matter how many hours they work.

The "Side Effect"

The second part of the "salary basis" test is the main point of this post. An employee MUST receive twice the minimum wage to be exempt from overtime pay. Commissioned salespeople MUST receive 1.5 times minimum wage to be exempt. If this criteria is not met, these employees are automatically entitled to overtime pay.

Under prior law, employees had to receive $28,080 per year to be exempt (twice the minimum wage ($13.50) X 40 hours X 52 weeks), but now that number has risen to $31,200.

So, all employers who simply pay their employees a flat salary of $30,000 per year suddenly have employees who should be (and are not) receiving overtime pay as of January 1, 2007.

Many employers may not realize the "side effect" of this change in California law and they might not even know that the exemption is tied to the minimum wage in the first place.

Overtime pay is a legal entitlement--NOT a fringe benefit. If you do not meet the criteria for overtime exemption and do not receive overtime pay, you should do something about it.

Q: I work from a home office in California, but my employer is based in Illinois. I have many business expenses I pay out of my own pocket but my employer refuses to reimburse me for them. Is this legal in California?

--Paying the Company's Bills (CA)

A: In California, Labor Code § 2802 requires all employers to reimburse employees for any business expenses they incur "in direct consequence of the discharge of [his or her] duties". This applies to all employees in California regardless of where their employer is headquartered.

Home Office Expenses

These rules are especially relevant for employees such as yourself who work from a home office. For example, you may be entitled to reimbursement for your home office:

• Computer equipment;
• Fax equipment;
• Office furniture;
• Phone line and service;
• Cell phone and service;
• Internet service;
• "Rent" for the use of your home as an office;
• Utilities attributable to the home office;
• Supplies; and
• Any other expenses you pay to operate your home office.

All employees should keep in mind that these rules apply even if they do not work exclusively from a home office. If you regularly work at home on the weekends in your home office, it is quite possible that you are also entitled to reimbursement for these expenses from your employer, although to a lesser extent.

Mileage Reimbursement

All employees are entitled to reimbursement for mileage driven in their personal vehicle on behalf of their employer. Usually this is done on a "per mile" basis, often at the IRS rate, which is currently 48.5 cents per mile.

If you do not drive your own vehicle for work, but instead have a company car or fleet vehicle, you are entitled to reimbursement for any gas you buy for the vehicle, maintenance costs such as oil changes and repairs.

Attorney's Fees

When you bring a claim for unreimbursed expenses in California, you are also entitled to recover any attorney's fees you pay in pursuing your case. This is very helpful to employees because the harder an employer fights the case, the more they will have to pay the employee in the end.

Q: I have worked for a company over 20 years and now I am retiring. I never took a vacation the last ten years I worked there. Each year I lost all of the vacation time I did not use. My son told me that is illegal in California. Is that true?

--Need a Vacation (CA)

A: Your son is correct. In California, so-called "use-it-or-lose-it" vacation policies are illegal. Once an employee accrues (earns) their vacation time, they cannot lose it and it must be paid out at the end of employment.

Recent Case Helps Employees

A recent California court decision has fixed a quirk in California law that used to only let employees recover four years of accrued but unpaid vacation time. The court in that decision held that when an employee leaves employment with an employer, he can recover all vacation time he accrued but never received payment for during his employment.

In your case, this is a substantial development, because you can now recover vacation time accrued but not used over the last twenty years.

Additional Penalties

In addition to your vacation wages, you may be able to recover additional money, such as attorney's fees, interest on your unpaid wages and "waiting time" penalties.

In California, employees whose employer does not pay out all of their vacation pay at the time their employment ends can recover "waiting time" penalties. Under this law, employees can recover one day of wages for each day their wages go unpaid for a maximum of thirty days' additional wages.

Also keep in mind that these are calendar days not workdays. So, over the course of 30 days the penalties would actually equal approximately six weeks of wages.

Q: My employer terminated me today (December 31, 2006). I was supposed to receive a $10,000 performance bonus for 2006, but one of the terms of my bonus agreement says that I have to be employed on January 1, 2007 to get my bonus. The company is not doing very well and I think I was actually terminated so that they did not have to pay me the bonus. Can they get away with this?

--Unhappy New Year (CA)

A: I am sorry that this happened to you. Unfortunately, this is more common than most people think, but usually it is not so blatant. Often when managers start looking at their budgets at the end of the year and want to "trim the fat", they do this sort of thing to quickly save some cash at the expense of their employees.

You promised your employer you (1) would perform at a certain level during 2006 and (2) be employed on January 1, 2007. They in turn promised to give you a year-end bonus if you kept your promises to them.

In your situation, the only reason that you did not satisfy all of the conditions your employer placed on your bonus is because they essentially canceled the deal before you could finish.

This situation is similar to a common law school hypothetical. Say one person promises another person to give them $10,000 if they walk across a bridge. At the very last second before the person crossing the bridge reaches the other side, the other person yells out that he is canceling the offer.

California courts often look at situations like yours and determine what is "fair". It is likely that a court would decide that you complied with your bonus contract and it was only your employer's act of canceling your contract that kept you from finishing performance.

If so, you would be awarded your bonus as well as attorney's fees, costs, interest and possible penalties.