California Requires Written Agreements by End of 2012

California Labor Code 2751 is being revised to require employers to place commission pay arrangements in writing. Businesses have the next 12 months to prepare. Effective January 1, 2013, section 2751(a) will state:

“Whenever an employer enters into a contract of employment with an employee for services to be rendered within this state and the contemplated method of payment of the employee involves commissions, the contract shall be in writing and shall set forth the method by which the commissions shall be computed and paid.”

Employers will be required to “give a signed copy of the contract to every employee who is a party thereto and shall obtain a signed receipt for the contract from each employee.” Labor Code 2751(b). If the contract expires, its terms continue until specifically superseded or the employment terminates.

Covered commissions are “compensation paid to any person for services rendered in the sale of such employer’s property or services and based proportionately upon the amount or value thereof.” (Labor Code 204.1) The new law does not cover short-term productivity bonuses “such as are paid to retail clerks” or other bonus and profit-sharing plans “unless there has been an offer by the employer to pay a fixed percentage of sales or profits as compensation for work to be performed.” Labor Code 2751(c).

The former Labor Code 2751 required such written commission agreements only for employers with no “permanent and fixed place of business” in California. However, in 1999 a federal judge found that limiting the law to such out-of-state companies was unconstitutional. Thus, the revised code section seeks no such discrimination. Now all businesses employing in California will be subject to the requirements.

While employers could find this “put it in writing” requirement an inconvenience, the new law can be regarded as a positive incentive for businesses to nail down important specifics on their commission plans.

For example, it is not uncommon for a company to overlook defining the event or events after which an employee no longer earns a commission. Is a worker entitled to a percentage of certain income the employer receives after his or her departure? If so, what is the formula for confirming and calculating post-termination commissions? Where an oral (or just presumed) agreement can create an expensive fight over how much commission money, if any, a terminated employee has earned after his or her termination, a written agreement can establish the boundaries and cut-off points clearly.

While the revised law specifies no penalty or consequence for failing to place a commission agreement in writing, court could disregard a future employer’s claimed oral commission arrangements with workers as unenforceable, instead siding with an employee’s much more generous recollection of commission terms. The state’s wage enforcement agencies or a court could also consider written commission agreements within the scope of “personnel records” and that an employer’s failure to maintain and provide them for inspection under Labor 1198.5 even subjects that employer to misdemeanor fines and even imprisonment under Labor Code 1199(c).

As there is no time like the present, it is a good idea to address any needed written agreements or revisions before the coming year has suddenly flown by. An experienced labor and employment lawyer can of course help an employer steer clear of the ambiguities and create workable agreements that benefit all concerned.

Must Employers Pay Premiums for Extra Hours Worked?

California Labor Code 2751 requires that all California employee commission compensation agreements must be in writing by January 1, 2013. Whether a business already has written commission arrangements with its sales personnel, this impending deadline is incentive to ensure such arrangements are clearly stated and in compliance with applicable laws, including the rules for any sales commission-related exemptions from overtime compensation.

Except for workers who are “exempt” from the requirements, employers must pay employees at increased per-hour (“premium”) rates for “overtime.” Federal rules define overtime as “after 40 hours worked” in a company’s seven day “workweek.” California also defines overtime as “after eight hours worked” in a company’s 24 hour “workday.” See, Working Overtime in California, Basic Rules and Rates for Daily and Weekly Hours.

Certain sales personnel qualify for exemption from the federal and California overtime rules. In such instances, an employer need only pay the agreed-upon commissions – or other arrangement of set salary/hourly pay and commissions – no matter how many hours the qualified sales person works in a given workday or workweek.

The rules for each of the two sales personnel exemptions (outside sales and inside sales) are very specific and potentially complex, requiring management’s regular management attention to ensure each particular employee qualifies from week to week. There are also key distinctions between the California and federal exemptions, requiring employers to carefully confirm that its exempt sales people comply with each set of rules.

Outside Salesperson Exemption: California exempts from overtime compensation “[a]ny person, 18 year of age or older, who customarily and regularly works more than half the working time away from the employer’s place of business selling tangible or intangible items or obtaining orders or contracts for products, services, or use of facilities.” See, Glossary, Division of Labor Standards Enforcement (DLSE).

Federal law exempts from overtime compensation an individual whose “primary duty” is making sales or “obtaining orders or contracts for services or for the use of facilities for which a consideration will be paid by the client or customer” and who is “customarily and regularly engaged away from the employer’s place or places of business.” See, U.S. Department of Labor, Wage and Hour Division Fact Sheet No. 17F.

To determine whether an employee qualifies for this exemption, federal law thus counts that person’s actual sales actions in the field as well as incidental activities (e.g., deliveries, collections, repairs, maintenance and/or in-office telephone calls or emails for appointments). However, for a California employee to qualify for this state’s outside sales exemption, he or she must be engaged in actual sales activities outside of “the employer’s place of business” for over 50% of the time. Any deliveries, collections, and various in-office activities, whether or not incidental to securing sales, cannot exceed 49% week-to-week under California’s rules.

Personnel who qualify as the outside salespersons are exempt from minimum wage and overtime pay.

Inside Salesperson Exemption: An “inside sales representative” sells products or services in a store, sales lot or while otherwise situated in the employer’s place of business (e.g., telephone solicitation and sales). In California, a commissioned inside sales representative covered either by Industrial Welfare Commission Wage Order 4 (professional, technical, clerical, mechanical and similar occupations) or Wage Order 7 (merchantile industry) is exempt from overtime compensation if:

• total compensation exceeds 1.5 times the minimum wage for each hour worked during the pay period; and
• at least 50% of total compensation comes from commissions.

California’s minimum wage is $8.00 per hour. Since an inside salesperson’s compensation must exceed the $12.00 amount for every hour worked in a week, this exemption has the unique requirement of employee’s accurately tracking work hours each week to ensure he or she qualifies for the exemption. Whether the sales commission structure is comprised of a base salary plus commissions, pure sales commissions, a draw provided against future commissions or some combination of these, the exemption requires that each weekly paycheck (or the per week proration of a bi-monthly paycheck) exceeds $12.00 multiplied by the number of hours worked for that week to qualify.

The exemption applies in the case of an employee paid a fixed salary plus earned commissions if the amount of sales commissions exceeds the total amount of salary payments for a chosen representative period. If a company compensates a worker purely by sales commission, this “51% – 49%” calculation is of course irrelevant.

The employer must chose a representative period to establish the plus-50% commissions and minus-50% salary ratio that is at least one month and but no more than one year in duration. The employer should pick a reasonable duration at or between those extremes that is a fair reflection of the salesperson’s true weekly average of earned commissions. For example, where a company’s sales to the public and commissions paid are relatively constant month-in and month-out, then picking a relatively short representative period is reasonable. In a business with seasonally high or low periods of sales, then calculating the average weekly figure for commissions should reasonably require a period nearer or at a year’s-worth of activity. It is conceivable that a business could have some types of sales that warrant a shorter representative period than for sales of other products or services. Whatever representative period(s) the employer chooses, the employer must document the average ratio for each employee for each such period.

Federal rules limit qualification to those who work in the “retail and service industry.” Employers are engaged in the “retail and service industry” within the meaning of the federal Fair Labor Standards Act if they derive at least 75% of their annual sales revenue from goods or services not for resale and are recognized as a retail or service establishment in their industry.

While an employee qualified for the inside salesperson exemption does not earn overtime compensation, he or she is nevertheless entitled to the meal breaks and rest periods accorded hourly, non-exempt-from-overtime workers. See, e.g., California Wage Order 4 at sections 11 and 12.

There is potentially much more at play under both state and federal rules. For actual legal advice on how any of these rules apply to actual workplace arrangements, management should consult with qualified labor and employment counsel.

California Labor Code section 515.5 exempts certain computer professionals from overtime compensation. The criteria includes set minimum compensation. The California Department of Industrial Relations (DIR) recently increased this minimum, effective January 1, 2013.

Employers will now have to pay otherwise qualified computer software employees, a minimum $39.90 per hour, up from $38.89. The new rate translates to $6,927.75/month or $83,132.93/year.

While persons who qualify for this exemption need not be paid at “time-and-a-half” or “double time” rates for overtime hours, the rules still require employers to accurately document the actual number of hours such qualified persons work. While companies commonly direct employees to track their hours worked, employers are primarily responsible for ensuring those records are truthful and complete.

An employee is an exempt computer professional only if he or she also meets each of the high-level skills and duties criteria for that exemption. An employer should ensure that any such worker meeting the very specific requirements laid out in Labor Code section 515.5, which include but are not limited to “primarily engaged” (more than 50% of the time) in intellectual or creative work which requires “the exercise of discretion and independent judgment” as well as work in applying systems analysis to determine the “functional specifications” of hardware, software or systems; designing computer systems of programs; and/or documenting, testing, creating or modifying computer programs related to computer systems software or hardware design.

If a computer professional meets all of these requirements, he or she need possess no particular academic degree to be eligible for this exemption.

Employers who use this overtime exemption for any portion of their workforces will need to incorporate this rate change into their pay practices by the end of 2012. For assistance, contact a knowledgeable employment law attorney.

Computer professionals also may be qualified for other exemptions from overtime compensation, including the administrative or executive exemption. Each of those categories of course carries its distinct qualification rules.

California Labor Code section 515.6 exempts certain licensed physicians and surgeons from overtime compensation. The criteria includes set minimum compensation. The California Department of Industrial Relations (DIR) recently increased this minimum, effective January 1, 2013.

Employers will now have to pay otherwise qualified physicians and surgeons the equivalent of at least $72.70 per hour, up from the current $70.86 rate. The new rate translates to $12,601.33/month or $151,216/year.

While persons who qualify for this exemptions need not be paid at “time-and-a-half” or “double time” rates for overtime hours, the rules still require employers to accurately document the actual number of hours such qualified persons work. While companies commonly direct employees to track their hours worked, employers are primarily responsible for ensuring those records are truthful and complete.

Under Labor Code section 515.6, an employee is an exempt-from-overtime worker only if he or she is also a licensed physician or surgeon “primarily engaged” (more than 50% of the time) in duties that require that licensure. For instance, California Business & Professions Code section 2052 requires a medical license for anyone who “diagnoses, treats, operates for, or prescribes for any ailment, blemish, deformity, disease, disfigurement, disorder, injury, or other physical or mental condition of any person.”

Employers who use this overtime exemption for their workforce will need to incorporate this rate change into their pay practices by the end of 2012. For assistance, contact a knowledgeable employment law attorney.

Licensed medical doctors also may be qualified for other exemptions from overtime compensation, including the administrative, executive, or professional exemptions. Each of those categories of course carries its distinct qualification rules.

The California Legislature has made an important change, effective January 1, 2013, eliminating some of the ability of businesses to negotiate wage arrangements with hourly workers.

In February, 2011, we summarized the Court of Appeal decision in Arechiga v. Dolores 192 California Appellate Reports, 4^th Series (Cal.App.4^th) 567 (2011). See, “Written Salary Agreements and Overtime.” The case had upheld the use of so-called “explicit mutual agreements” to establish a salary for hourly workers that included overtime compensation within that set weekly amount.

Thus, the court validated an agreement between Carlos Arechiga and his employer Dolores Press for a $880 salary to cover a 66 hour weekly schedule, with $445.60 allocated to cover the 40 hours of regular time (at $11.14/hour) and $434.46 to cover the 26 hours of overtime (at $16.71/hour, 1.5 x the regular rate).

The new law for 2013, Labor Code 515(d)(2), directly reverses the Arechiga decision. Now, any salary agreement for a California hourly employee “shall be deemed to provide compensation only for the employee’s regular, non-overtime hours, notwithstanding any private agreement to the contrary” (emphasis supplied).

On the Arechiga-Dolores Press example above, this means that the $880 salary would now only apply for the worker’s first 40 hours worked in any workweek (and, prorated, to that person’s first eight hours worked in any day). California law would thus now regard that $880 to equal a regular hourly rate of $22.00/hour ($880 ÷ 40 = $22). On the 66 hour schedule in the Arechiga case, the employer would be obligated to pay the worker a rate of at least $33.00/hour for every overtime hour or, at minimum, another $858/week, nearly doubling the total $880 amount approved in the above 2011 decision.

It is of course important that California businesses swiftly reevaluate such “explicit mutual agreements” for salaries to hourly employees who work any overtime hours. Alternatives could include: 1) eliminating the salary arrangement altogether and proceeding with an established straight rate for every hour worked and the premium rate(s) calculated for each overtime hour worked in a given workday or workweek; or 2) setting a new, lower salary amount to cover non-overtime hours only, with overtime hours compensated by the standard formulas. See also, “Working Overtime in California, Basic Rules and Rates for Weekly or Daily Hours,” and “Calculating Overtime with Employee Bonuses in California.”

For help on how these issues might impact your business, please contact our firm’s attorneys Tim Bowles or Cindy Bamforth.

California Labor Code 980, effective January 1, 2013, prohibits employer access to its workers’ personal social media.

The new law defines “social media” as “an electronic service or account, or electronic content, including but not limited to, videos, still photographs, blogs, video blogs, podcasts, instant and text messages, email, online services or accounts, or Internet Web site profiles or locations.”

Thus, to name a few, the new rule covers such social networking, blogging, and other information sharing sites as Facebook, Faceparty, Faces.com, Twitter, Tylted, Tagged, Tumblr, YouTube, Yammer, Yelp, Flickr, Flexster, Friendster, Fotolog, Fotki, Foursquare, Fubar, LinkedIn, Lafango, LAGbook, LaiBhaari, Last.fm, LibraryThing, Lifeknot, LiveJournal, Livemocha, Instagram, Ibibo, italki.com, Itsmy, iWiW, Bebo, BeNaughty, Black Planet, Blogster, BIGADDA, Buzznet, Habbo, Hi5, Hotlist, HR.com, Pinterest, Partyflock, Pingsta, Plaxo, PureVolume, Playfire, Playlist.com, Plurk, Path, PerfSpot, PatientsLikeMe, Redddit, CafeMom, Care2, Classmates.com, Chemistry.com, Christian Mingle, CouchSurfing, deviantART, Elftown, English, baby!, eHarmony, Google+, Grono.net, Goodwizz, Goodreads, GetGlue, Gaia Online, GamerDNA, Gather.com, Orkut, Open Diary, Odnoklassniki, Makeoutclub, Meetup, Multiply, Match.com, Matchmaker, MouthShut.com, MOG, Mubi, Mixi, Myspace, MyHeritage, MyLife, My Opera, myYearbook, Netlog, Ning, Nexopia, NGO Post, Nasza-klasa.pl, Wakoopa, Wattpad, WAYN, WeeWorld, Wellwer, WeOurFamily, Wepolls.com, weRead, Wiser.org, Wooxie, Xanga, XING, Zooppa, Zoosk, Zorpia, Vkontake, and, of course, Vampirefreaks.com.

Intended to protect privacy, a California employer may not require employees or job applicants to:

• Disclose a username or password for the purpose of accessing personal social media;

• Access personal social media in the presence of the employer; or

• with the exceptions below, to divulge any personal social media

New Labor Code 980 does permit an employer to request personal social media information if that information is thought to be relevant to an investigation of an employee’s misconduct or suspected illegal activity and the employee’s social media account is used only for purposes of the investigation.

Employers may also require employees disclose usernames, passwords or other access information to employer-issued electronic devices such as computers, phones, or tablets.

California businesses should thus closely review their workplace personnel management practices and social media policies to ensure they are consistent with the above rules.

Please contact our firm’s attorneys Tim Bowles or Cindy Bamforth for more information or discussion on employee privacy, particularly personal social media in the workplace.

Related articles:

“Social Media Policies in the Workplace”

“Promoting Workplace Productivity with Sound Policy Handbook and Forms”

“Expecting Privacy at Work? Fugeddaboutit!”

All California Agreements Must be in Writing by 2013

As we have reported, in a few short months (by January 1, 2013), California Labor Code section 2751 will require all businesses to ensure employee commission agreements are in writing. See, “Employee Sales Commissions: California Requires Written Agreements by End of 2012.”

While it is a good idea to have all compensation agreements in writing, the new law will not actually require other production-based pay plans to be written, for example bonuses or piece work.

In California, a commission is “compensation paid to any person for services rendered in the sale of such employer’s property or services and based proportionately upon the amount or value thereof.” Labor Code section 204.1 (emphasis added). As a commission is by definition linked to the sale of something, monies paid an employee in California for the making of so many units of product or for the provision of a one or another volume of a company’s services are not technically commissions (and thus, technically, will not have to be in writing by 2013).

The potential variations on commission compensation rules are of course vast. Whether writing a commission agreement for the first time or reviewing existing written arrangements for soundness, some essentials are:

• Define when and how a commission is earned (for example, when a sales agreement is reached, when the customer actually makes payment, etc.);
• Specify the formula used to calculate a commission for a particular sale or the volume of sales;
• Cover the procedure for resolving any commission to be split between two or more employees;
• Explain the timing of commission payments as required by state law;
• Reference the deductions from gross commission amounts as required by federal and state law;
• Describe the rules for any advance draw and reconciliation arrangements;
• Clearly spell out clearly that the company will pay upon termination only those commissions actually earned on or before that date; and
• Specify the rules for determination and payment of commissions an employee could yet earn after his or her termination date (for example, commissions earned only after the customer has paid on the sale). See, “Commissions for Terminated Employees, Clearly Written Agreements are the “Ounce” of Prevention”

An experienced employment law attorney can help a business prevent or limit disputes created by vague, ambiguous or non-existent sales commission agreements.

Related Article:
Is Your Commissioned Inside Sales Representative Exempt From Overtime?

Beginning January 1, 2013, amendments to California Labor Code 1198.5 significantly increased employer obligations and a worker’s rights to access and obtain copies of his or her personnel records.

While the statute continues to confirm that every employee “has the right to inspect the personnel records that the employer maintains relating to the employee’s performance or to any grievance concerning the employee,” it also extends that right to the employee’s representative. This could include the worker’s attorney. Section 1198.5 also clarifies that every current and former employee has these rights.

The law refers to records, not files. Thus, employee performance and grievance documentation a company maintains outside of any formal “personnel file” is also covered by the law. Section 1198.5 continues to exclude specific categories of documents from the rights of inspection and copying, including records of investigation into possible criminal offenses; letters of reference; ratings, reports or records obtained prior to the person’s employment, prepared by identifiable examination committee members, or obtained in connection with a promotional examination; and certain records of public employees.

Prior to this year, employers were only required to: 1) keep a copy of each employee’s personnel records at the place where the employee reports to work; 2) make the employee’s personnel records available within a reasonable period of time following an employee’s request; and 3) allow employees to inspect their personnel records with no loss of compensation. California Labor Code 432 also only required an employer to provide copies of records that the employee had signed.

The revised law requires employers must now:

– Make requested personnel records available at reasonable times but not later than 30 calendar days from the receipt of a written request. The parties can agree to extend this to 35 days, but no longer;

– Provide a copy of all such records on written request (not just those documents the employee signed) within 30 days at a charge not to exceed the actual cost of reproduction. Again, the parties can agree to extend that deadline to 35 days;

– Develop and provide a written request form to any employee who asks his or her supervisor or other designated and known company representative;

– For any current employee, make his or her personnel records available for inspection and, if requested, provide a copy of the records, at the place where that employee reports for work or at another location on which the parties agree;

– For any former employee, make his or her personnel records available for inspection and, if requested, provide a copy of the records, at the place where that the employer stores the records or at another location on which the parties agree in writing. A former employee may receive the records by mail if he or she pays the actual postal expenses;

– If a former employee was terminated for a violation or law or policy involving workplace harassment or violence, make his or her personnel records available at a location other than the workplace that is a reasonable driving distance from that person’s residence and provide any requested copy of the records by mail; and

– Pay a penalty of $750 to the California Labor Commissioner for any violation, in addition to injunctive relief and attorneys’ fees payable to the worker or former worker.

The amended law also provides specific limits and prerogatives on employers’ obligations. An employer:

– Need only comply with one request per year from a former employee;

– Need only comply with 50 such requests filed by representatives of employees (e.g., lawyers) in any calendar month;

– May redact any non-supervisory employee from the requested personnel records;

– May designate a representative of the business to receive such requests;

– May “take reasonable steps to verify the identity” of the requesting current or former employee or the authorized representative of that person (e.g. driver’s license or other valid photo ID);

– Need not comply if the requesting current or former employee files a suit against that employer relating to a personnel matter and if such records are relevant to that suit;

– Need not comply with any of these provisions for an employee covered by a valid collective bargaining agreement if that agreement meets specific criteria on wage rates and work conditions and provides a procedure for inspection and copying of personnel records.

Labor Code Section 226(b) already imposed similar rules on the inspection and provision of payroll records to current and former employees. That section requires such access and provision of copies within 21 days of a written or oral request.

The California Division of Labor Standards Enforcement provides more information on the access rules for personnel and payroll records on its website.

Our firm’s attorneys Tim Bowles or Cindy Bamforth can assist you in implementing or revising workplace policies and personnel procedures as appropriate to ensure compliance with these new laws.

Effective January 1, 2013, California’s Fair Employment and Housing Act (FEHA) expands the definition of potentially protected religious beliefs and practices to include “religious dress and grooming practices.” Employers also must now meet a much more stringent standard to deny accommodation of religious practices as an undue hardship to the business.

Religious Dress and Grooming: The new law, titled the California Workplace Religious Freedom Act of 2012 (“WRFA”) amends Government Code sections 12926 and 12940 to specify that “religious dress practice” is “wearing or carrying of religious clothing, head or face coverings, jewelry, artifacts, and any other item that is part of the observance by an individual of his or her religious creed.” “Religious grooming practice” includes “all forms of head, facial, and body hair that are part of the observance by an individual of his or her religious creed.”

This FEHA amendment thus establishes that an employee’s religiously motivated appearance (for example, a Sikh male’s turban or facial hair, or a Muslim woman’s head scarf) trigger an employer’s duty to seek reasonable accommodation of such a dress or grooming practice.

The new law also specifies that an employer accommodation “religious dress or grooming” is not reasonable if it requires the employee to be segregated from the public or other employees. This provision stems from a 2002 case where an employer segregated a Sikh man from public view due to his turban. FEHA now clearly states such an employer action would be unlawful.

The new law also directs that an employer is not required to accommodate such a dress or grooming request if it would result in the violation of any other law prohibiting discrimination or protecting civil rights.

Employer’s More Stringent Requirements to Establish Undue Hardship on Any Religious Accommodations: Before 2013, California employers could show “undue hardship” by establishing a worker’s request for religious accommodation would have but a bare minimum (de minimus) negative impact on the business’s operations or finances. See, e.g., “Avoiding Religious Discrimination in the Workplace,” Bowles Law Report, Vol. 9, Issue 4.

Similar to lawful “undue hardship” justifications for declining accommodations of employee disabilities, a company must now show a “significant difficulty or expense” to establish undue hardship in the religion context. “Significant” depends on several factors: (1) the nature and cost of the accommodation needed; (2) the overall financial resources of the facilities involved, the number of persons employed at the facility, and the effect on expenses and resources or on the operation of the facility; (3) the overall financial resources of the company as a whole; (4) the type of operations of the company; and (5) the geographic separateness of the facility.

FEHA continues to require that a business claiming undue hardship demonstrate that it has explored any available reasonable means of accommodating the religious belief or observance.

Issues in this area tend to be sensitive and complex. For help, please contact our firm’s attorneys Tim Bowles or Cindy Bamforth.

Related Article:

“Accommodating Religion in the Workplace: Avoid the Employment Discrimination Gallows”