1Don’t Be a Wage & HourClass Action Victim:Prevention Strategies to Keep Your Company Out of Legal Trouble

Presented By:

Maria Z. Stearns, Esq.Senior CounselRutan & Tucker, LLP714.338.1821mstearns@rutan.com

____________, 2011

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EMPLOYMENT CLASS ACTIONSMost Frequently Filed + Highest Growth Rate

29.3%

27.4%10.3%

5.9%

5.4%

3.5%

3.4%

14.8%Employment

Business Tort

Breach of Contract

Antitrust

Construction Defect

Product Liability

Fraud

Other

EMPLOYMENTHIGHEST

GROWTH RATE313%!

BUSINESS TORT

Study of California Class Action Litigation -- Released March 2009.Conducted by the Administrative Office of the Courts -- Office of Court Research

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MAJOR AREAS OF CLASS ACTION RISK

1. Overtime Calculation: Bonuses/Shift Differential

2. Meal/rest periods

3. Misclassification of employeesas "exempt“

4. "Off-the-clock" claims

5. Independent Contractors

6. Business Expense Reimbursement

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Class Action Risk Area #1: Overtime Owed On Bonuses/Commissions

WHO? Non-exempt employees eligible for bonus (including commission) payments

KEY QUESTION: Is bonus discretionary?

Non-discretionary bonus payments must be factored into the regular rate of pay

Non-Discretionary = prior agreement or promiseExamples: Sales Bonus; Production

Bonus; Sales Commissions; Store Profit Bonus

Discretionary = no expectation of paymentExamples: Holiday Bonus; Performance

Bonus (where no set targets and no guarantee that any bonus will be paid)

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STEPS TO MINIMIZE EXPOSURE TO UNPAID OVERTIME ON BONUSES

• Review payroll practices to confirm proper overtime formula is being used:

Non-discretionary bonuses must be factored into regular

rate of pay

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Class Action Risk Area #2: Missed Meal/Rest Periods

Big Penalties!!!

1 hour of pay for each day meal period is missed

+ 1 hour of pay for each day rest

period is not provided

= DOUBLE WHAMMY

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Class Action Risk Area #2: Missed Meal/Rest Periods

Example: 500 employees @ $10/hour2 missed meal periods per week2 missed rest periods per week

TOTAL POTENTIAL EXPOSURE =$20,000 per week + interest + attorneys’ fees

4 YEARS = over $4 million!!!

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Class Action Risk Area #2: Missed Meal/Rest Periods

Common Mistakes:

• Automatic 30-minute deductions

• Providing less than 30 uninterrupted minutes

• On-duty meal periods

• Requiring employee to stay on the premises

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STEPS TO MINIMIZE MEAL/REST PERIOD EXPOSURE

• Brinker is not the law. . . yet

• Detailed written meal/rest period policies distributed to employees and posted at worksite

• Meal/rest period training -- employees + management

• Timecard audits

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Class Action Risk Area #3: Employee Misclassification

THE STAKES ARE HIGHCalifornia Settlements

• Red Lobster/ $9.5 million for missed meal/rest breaks; Olive Garden: $11 million for misclassifying managers as exempt

• Staples, Inc.: $38 million for misclassifying assistant store managers as exempt

• Merrill Lynch: $37 million for misclassifying inside sales representatives as exempt

• State Farm: $135 million for misclassifying claims adjusters as exempt  

$

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Class Action Risk Area #3: Employee Misclassification

• Presumption = non-exempt

• Job titles not determinative

• Must satisfy Wage Order’s salary rule + duties test

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Class Action Risk Area #3:Employee MisclassificationMain Litigation Targets

EXEMPTION WATCH FOR

Administrative • matters of significance• discretion & independent judgment• >50% of time

Executive (managers) • >50% of time managing people• authority to hire and fire• discretion & independent judgment

Computer professional • hourly rate ≥ $37.94 or $79,050 annual salary• IT support

Outside Sales Reps • >50% of time away from employer's place of business • engaged in selling

Inside Sales Reps • Wage Orders 4 and 7• >50% of compensation from commissions

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STEPS TO MINIMIZE MISCLASSIFICATION EXPOSURE

• Conduct periodic internal audits of exempt employees to ensure compliance with salary rule + duties test

• Maintain detailed and accurate job descriptions that track exemption requirements

• Create different job levels

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Class Action Risk Area #4: "Off-the-Clock" Time  

• Virtual network access to company servers and e-mail

• Pre/Post-shift "work“

• Computer boot-up

• Timecard edits

• Rounding

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STEPS TO MINIMIZE OFF-THE-CLOCK CLAIMS

•Limiting virtual-network access

•Manager Training

•Written policies

•Employee timecard verification accurately reflects all hours worked

•Processes for timecard edits

•Timecard audits

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Class Action Risk Area #5:Misclassifying Employees as Independent Contractors

President Obama’s 2010 budget estimates $7 BILLION in revenue over the next 10 years

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Class Action Risk Area #5:Misclassifying Employees as Independent Contractors

THE STAKES ARE HIGH

California Settlements

• FedEx: $27 million for misclassifying delivery drivers as independent contractors

• Orange County Register: $42 million for

misclassifying newspaper carriers as independent contractors

$

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Class Action Risk Area #5:Misclassifying Employees as Independent Contractors

MULTI-FACTOR TEST

• Is the work performed part of the employer's regular business?

• How much control does the employer have over the worker?

• Exclusivity of relationship?

• Termination at-will?

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Steps to Minimize Independent Contractor Misclassification Exposure

• For every worker classified as an independent contractor, review the EDD Employment Determination Guide and Worksheet on Employment Status: http://www.edd.ca.gov/pdf_pub_ctr/de38.pdf

• IF IN DOUBT, TREAT AS EMPLOYEE!!!

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Class Action Risk Area #6:Failure to Reimburse for Business Expenses

• All employees (exempt and non-exempt) are entitled to reimbursement for expenses or losses incurred "within the course and scope of employment" (e.g., mileage, cell phone, uniforms, tools, etc.)

• Broadly construed

• Must fully reimburse employee

• “You Break It, You Buy It” – NO! Proper recourse = discipline

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Steps to Minimize Expense Reimbursement Exposure

• Create and distribute a written policy

• If lump sum payment, periodically audit with employee to ensure accuracy of figure

• If covering expenses by paying a higher base salary, portion for expenses must be identifiable

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ACTION ITEMSWhat you should do NOW to reduce class action exposure

1. If paying bonuses/commissions to non-exempt employees, review payroll practices to ensure proper payment of overtime

2. Review meal/rest period policies and procedures3. Internal audit of exempt classifications and job

descriptions4. Review timekeeping practices for exposure to off-the-

clock claims; add timecard verification; review timecard edit processes

5. Go through EDD Worksheet on Employment Status for anyone classified as an Independent Contractor

6. Communicate expense reimbursement policy to all employees

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QUESTIONS?

Maria Z. Stearns, Esq.Rutan & Tucker, LLP611 Anton Boulevard, Suite 1400Costa Mesa, CA 92626Phone: 714.338.1821mstearns@rutan.comwww.rutan.com

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Maria Z. Stearns Biography

Maria Z. StearnsSenior CounselRutan & Tucker, LLP

Orange County714.338.1821mstearns@rutan.com

Maria Z. Stearns is Senior Counsel in the firm’s Employment Law Department where she represents businesses in employment litigation and transactional matters. Ms. Stearns has extensive wage and hour class action experience, and has defended a wide variety of claims, among them allegations of meal/rest period violations, employee misclassification (exempt/non-exempt), improper bonus/commission plans, unpaid business expenses, uniform claims, reporting time pay, and timecard rounding.

In addition to her class action work, Ms. Stearns has also successfully represented employers in discrimination, retaliation, sexual harassment, disability and wrongful termination cases in state and federal court, and in administrative charges filed with the U.S. Equal Employment Opportunity Commission, the California Department of Fair Employment and Housing (and other state fair employment administrative agencies), the U.S. Department of Labor and the California Division of Labor Standards Enforcement.

As part of her practice, Ms. Stearns also provides preventative counseling and guidance to businesses regarding all aspects of the employer-employee relationship. This includes: assisting employers in conducting wage and hour self-audits and in responding to government audits; guiding employers through reduction-in-force programs, including compliance with state and federal laws such as the Worker Adjustment and Retraining Notification Act (“WARN”); drafting employee handbooks, workplace policies, employment agreements, commission plans, separation agreements, and employee counseling documents; advising on leave of absence and disability accommodation issues; and serving as a day-to-day resource regarding employment questions. Ms. Stearns is also regularly engaged by employers to conduct on-site sexual harassment training pursuant to A.B. 1825.

Ms. Stearns was a full-scholarship varsity tennis player at the University of Kansas where she was named NCAA Woman of the Year. Ms. Stearns is fluent in Spanish and studied abroad in Guadalajara, Mexico.

AWARDS• Recognized as a Rising Star by Southern California Super Lawyers magazine (2010)

MEMBERSHIPS & ADMISSIONS• State Bar of California (Labor and Employment Law Section)• American Bar Association (Labor and Employment Law Section)• Orange County Bar Association (Labor and Employment Law Section)• National Human Resources Association (2009 – Present)• Orange County Bar Foundation (non-profit organization committed to keeping at-risk youth out of jail, in school,

healthy and drug free through education, counseling and mentoring), Board of Directors (2008 – Present)© 2011

Maria has been selected for inclusion in Super Lawyers – Rising Star Edition in 2010.