Former U.S. House Representative Michael Barnes once stated, “California is in many ways a little different from the rest of the world.” He may well have been speaking about the laws that govern employers in California. In addition to federal law, California employers must be aware of state statutes and regulations, and even those of certain cities and counties, including San Francisco. Below is a summary of just some of the California laws which generate the most confusion for California employers. Our next newsletter will include a summary of California’s morass of leave laws.

Overtime Pay

(California Labor Code § 510)

California employers must be familiar with overtime pay requirements under California law, which are more onerous than the overtime provisions under the Fair Labor Standards Act.

Here are some highlights:

  • Overtime compensation is based on an employee’s “regular rate.” Federal law calculates this rate by dividing the total compensation by the actual hours the employee worked. California law, on the other hand, calculates the regular rate by dividing the employee’s total compensation by the statutory 40-hour minimum, which may result in a higher rate than under federal law.
  • Under federal law, employers must pay at least one and one-half times the employee’s regular rate to employees who work more than 40 hours per workweek. In California, employers must pay at least one and one-half times the employee’s regular rate to employees who work more than 40 hours per workweek or more than eight hours per workday. Required overtime pay increases to double the employee’s regular rate for time worked over 12 hours in one workday or for time worked over eight hours on the seventh day of a workweek.

Meal and Rest Period Provisions

(California Labor Code §§ 512 and 226.7)

Claims by current and former employees that they were not provided meal or rest periods are very common in the employment arena. Often, where no other claim for monies from an employer exists, employees gain litigation traction by bringing such a claim as a class action. These claims can be quite costly to employers.

Meal Periods: Employers must provide all employees an unpaid, 30-minute, duty-free meal period when the employee works more than a five-hour work period in a day. Employers must provide a second, unpaid, 30-minute, duty-free meal period where an employee works more than 10 hours per day.

If an employee is not relieved of all duties during his or her 30-minute meal period and permitted to leave the premises, this time is counted as hours worked and must be compensated at the employee’s regular rate of pay.

Rest Periods: Employers must provide all nonexempt employees a paid 10-minute rest break for every four-hour work period or major fraction thereof. A “major fraction” is defined as any amount of time over two hours. The rest period begins when the employee reaches an area away from the work area that is appropriate for the rest. This rest period should be given in the middle of each work period where practicable. As an exception to this rule, a rest period is not required for employees whose total daily work time is less than three and one-half hours. It is important to note that smokers do not receive extra breaks. Additionally, restroom breaks are not counted toward these 10-minute rest periods.

If an employer fails to provide an employee a rest period, the employer must pay the employee one additional hour of pay at the employee’s regular rate of pay for each workday during which one or more rest period was not provided.

Vacation Pay

(California Labor Code § 227.3)

In California, vacation pay is considered a form of deferred wages for services rendered. A proportionate right to paid vacation vests as the employee performs his or her work. Hence, an employer must compensate the employee for unused vested vacation time and may not impose requirements that forfeit payments to employees of unused vacation (also known as a “use it or lose it” policy). However, employment agreements or company policy may place a “cap” on accrual of vacation pay after which no further vacation will accrue until some vacation is taken.

Waiver of Employees’ Wage Claims Under California Wage and Hour Law

(California Labor Code § 206.5, California Civil Code § 3513)

Contracts such as separation agreements, release agreements and severance agreements generally may not require employees in California to waive their claims under California wage and hour laws. The California Labor Code states that “No employer shall require the execution of any release of any claim or right on account of wages due, or to become due, or made as an advance on wages to be earned, unless payment of such wages has been made. Any release required or executed in violation of the provisions in this section shall be null and void as between the employer and the employee and the violation of the provisions of this section shall be a misdemeanor.” California courts construe Labor Code provisions as laws established for the public that cannot be waived by an individual. Wages, furthermore, are not deemed to be “ordinary debts,” but rather payments that are essential to the public welfare.

Payment of Wages Due Upon Termination of Employment

(California Labor Code § 201 et seq.)

All employers must be aware of California’s requirement to pay employees all wages due upon termination of employment. An employer who discharges an employee must pay all compensation due and owing immediately. When an employee resigns, the employer must pay all compensation due and owing – including accrued vacation pay – within 72 hours of termination, or on the employee’s last day of work, if the employee gives more than 72 hours’ notice of resignation. Employers who willfully violate these provisions are subject to waiting time penalties of up to 30 days of the employee’s wages.

Sexual Harassment Prevention Training

(California Government Code § 12950.1)

This rule applies to all employers who employ 50 or more employees, including full-time and part-time employees, temporary workers and any person hired pursuant to a contract. All supervisory employees for covered employers are required to participate in two hours of classroom or other interactive training and education regarding sexual harassment. This training is required every two years, and every new employee is required to participate in the training within the first six months of assuming a supervisory role.

Non-Compete Agreements

(California Business and Professions Code § 16600)

California’s overarching policy against noncompetition agreements is set forth in Business and Professions Code § 16600, which provides that “every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void.” This proscription extends to employers’ efforts to protect their business by requiring employees to sign agreements not to compete with the company after leaving their employment, as well to as agreements that seek to prevent former employees from accepting business from any of the former employer’s clients. Only limited exceptions to § 16600 apply, such as the sale of the goodwill in a business and dissolution or disassociation of a partnership or a limited liability company. However, California employers may protect their business through a properly crafted confidentiality agreement designed to protect legitimate trade secrets. Such agreements will be scrutinized carefully, however, to ensure that they meet the criteria for enforceability.

Class Action Waivers in Arbitration Agreements

Employers rely on arbitration agreements to attempt to control costs and the risks of employment litigation. However, crafting an arbitration clause that is enforceable in California requires care and has been the subject of much jurisprudence in the state. Recently, the California Supreme Court held that while an arbitration agreement may require employees to arbitrate employment matters individually, it may not preclude employees from bringing statutory employment claims in a class-action litigation setting. It is important to note that while this decision dealt with an unpaid overtime claim, it could have far-reaching effects for all employment litigation. This continues to be an area to watch in California.

Immigration Law and Employee Discharges

Under the federal Immigration Reform and Control Act of 1986 (IRCA), employers are required immediately to terminate employees who are determined to be ineligible to work in the United States. However, a recently decided case has held that employers are not required to discharge employees whose immigration status may be questionable if they are on a leave of absence. The court held that since employees on a leave of absence are not actually “employed,” allowing an employee to remain on leave while he or she is correcting his or her immigration status still complies with IRCA’s requirements. This can be very useful to employers whose workforce may be comprised of a large number of foreign nationals.

Having employees in California can be very complicated as evidenced by these highlights and California employers are well-advised not to go it alone. Consult from time to time with an attorney who specializes in California employment law. One quick phone call may well save time, money and your company’s reputation.