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1 Dont Be a Wage & Hour Class Action Victim: Prevention Strategies to Keep Your Company Out of Legal Trouble Presented By: Maria Z. Stearns, Esq. Senior.

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Presentation on theme: "1 Dont Be a Wage & Hour Class Action Victim: Prevention Strategies to Keep Your Company Out of Legal Trouble Presented By: Maria Z. Stearns, Esq. Senior."— Presentation transcript:

1 1 Dont Be a Wage & Hour Class Action Victim: Prevention Strategies to Keep Your Company Out of Legal Trouble Presented By: Maria Z. Stearns, Esq. Senior Counsel Rutan & Tucker, LLP ____________, 2011

2 2 EMPLOYMENT CLASS ACTIONS Most Frequently Filed + Highest Growth Rate EMPLOYMENT HIGHEST GROWTH RATE 313%! BUSINESS TORT Study of California Class Action Litigation -- Released March Conducted by the Administrative Office of the Courts -- Office of Court Research

3 3 MAJOR AREAS OF CLASS ACTION RISK 1.Overtime Calculation: Bonuses/Shift Differential 2.Meal/rest periods 3.Misclassification of employees as "exempt 4."Off-the-clock" claims 5.Independent Contractors 6.Business Expense Reimbursement

4 4 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 promise Examples: Sales Bonus; Production Bonus; Sales Commissions; Store Profit Bonus Discretionary = no expectation of payment Examples: Holiday Bonus; Performance Bonus (where no set targets and no guarantee that any bonus will be paid)

5 5 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

6 6 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

7 7 Class Action Risk Area #2: Missed Meal/Rest Periods Example: 500 $10/hour 2 missed meal periods per week 2 missed rest periods per week TOTAL POTENTIAL EXPOSURE = $20,000 per week + interest + attorneys fees 4 YEARS = over $4 million!!!

8 8 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

9 9 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

10 10 Class Action Risk Area #3: Employee Misclassification THE STAKES ARE HIGH California 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 $

11 11 Class Action Risk Area #3: Employee Misclassification Presumption = non-exempt Job titles not determinative Must satisfy Wage Order s salary rule + duties test

12 12 Class Action Risk Area #3: Employee Misclassification Main Litigation Targets EXEMPTIONWATCH 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

13 13 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

14 14 Class Action Risk Area #4: "Off-the-Clock" Time Virtual network access to company servers and Pre/Post-shift "work Computer boot-up Timecard edits Rounding

15 15 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

16 16 Class Action Risk Area #5: Misclassifying Employees as Independent Contractors President Obamas 2010 budget estimates $7 BILLION in revenue over the next 10 years

17 17 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 $

18 18 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?

19 19 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: IF IN DOUBT, TREAT AS EMPLOYEE!!!

20 20 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

21 21 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

22 22 ACTION ITEMS What 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 procedures 3.Internal audit of exempt classifications and job descriptions 4.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

23 23 QUESTIONS? Maria Z. Stearns, Esq. Rutan & Tucker, LLP 611 Anton Boulevard, Suite 1400 Costa Mesa, CA Phone:

24 24 Maria Z. Stearns Biography Maria Z. Stearns Senior Counsel Rutan & Tucker, LLP Orange County Maria Z. Stearns is Senior Counsel in the firms 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 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.


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