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Part Timers, Temps and Interns in California: How to Avoid the Legal Risks of Less-Than-Full-Time Employees Wednesday, February 16, 2011 Presented by the.

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1 Part Timers, Temps and Interns in California: How to Avoid the Legal Risks of Less-Than-Full-Time Employees Wednesday, February 16, 2011 Presented by the Employer Resource Institute © 2011 Employer Resource Institute. All rights reserved. These materials may not be reproduced in part or in whole by any process without written permission.

2 © 2009 Employer Resource Institute. All Rights Reserved Disclaimers This webinar is designed to provide accurate and authoritative information about the subject matter covered. It is sold with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional services. This webinar provides general information only and does not constitute legal advice. No attorney-client relationship has been created. If legal advice or other expert assistance is required, the services of a competent professional should be sought. We recommend that you consult with qualified local counsel familiar with your specific situation before taking any action.

3 © 2010 Employer Resource Institute. All Rights Reserved About Today’s Presentation This entire webinar is being recorded and all of the accompanying materials are protected by copyright. If at any time during today’s event you experience technical issues, please call (877) to reach an operator. Questions or comments about this webinar? Employer Resource Institute (800)

4 © 2010 Employer Resource Institute. All Rights Reserved This program, ORG-PROGRAM , has been approved for 1.5 recertification credit hours toward PHR® and SPHR® recertification through the Human Resource Certification Institute (HRCI). Please be sure to note the program ID number on your recertification application form. For more information about certification or recertification, please visit the HRCI home page at Recertification Credit The use of the above seal is not an endorsement by HRCI of the quality of the program. It means that this program has met HRCI’s criteria to be pre-approved for recertification.

5 © 2010 Employer Resource Institute. All Rights Reserved About Our Speaker Kristine E. Kwong, Esq., is a partner in the Los Angeles office of the law firm Musick, Peeler & Garrett, LLP. She advises and counsels clients on a wide range of business and employment issues, and her practice includes the drafting and updating of handbooks, policy manuals, codes of conduct, and severance packages. She regularly produces and presents training programs for employers on current issues of employment law, and she's a longtime popular speaker for BLR. Kristine earned her law degree from the University of the Pacific (McGeorge School of Law).

6 Part Timers, Temps, and Interns in California: How to Avoid the Legal Risks of Less-Than-Full-Time Employees Kristine E. Kwong, Esq. Musick, Peeler & Garrett, LLP

7 Definitions Copyright 2011 BLR Inc. Regular part-time employees are workers who are normally scheduled to work fewer than 40 hours per week and who are not designated to receive the typical fringe benefits that full-time workers receive. Interns are individuals receiving training (under close supervision in your workplace) that primarily benefits them (not you as the employer) and that advances their skills. This training time may be paid or unpaid. Volunteers are individuals who donate their time to work (for religious, charitable, or humanitarian reasons) for nonprofit groups or state and local public agencies. Volunteers are typically not permitted to work at for-profit businesses.

8 Definitions Copyright 2011 BLR Inc. Temporary employees are workers hired on that basis (i.e., temporary) for a special job and/or period of time. They are recruited and compensated by a temporary employment agency or a professional employer organization (PEO) – you pay the temp agency or PEO, which in turn pays the temps it employs. Leased employees are similar to temporary workers, except they are generally provided to you on an open-ended basis (while temp workers are usually supplied on a short-term basis). (You may hear the term "contingent workers" – that's a catch-all phrase that may include some or all of the above categories.)

9 The Basics Copyright 2011 BLR Inc. Joint Employer Status Companies that provide temporary employees (employee leasing companies) and the companies they provide these employees to are both considered "joint" or "general and special" employers for California employment law purposes. This means that both employers are fully liable for any legal violations. For example, if the employee leasing company doesn't follow wage and hour rules or maintain required records, you could be on the hook for its mistakes.

10 The Basics Copyright 2011 BLR Inc. Joint Employer Status The basic rule? You have responsibilities to temporary employees, even though you're not directly paying them. When you bring on someone else's employees, they also become your employees in many respects under federal and California law. You and the agency are both responsible for ensuring that temps are covered by workers' comp and wage/hour standards and that they have an I-9, W-4 and Social Security number on file. You also need to be sure that the agency has not improperly classified employees as exempt under FLSA rules when they shouldn't be. When selecting an employee leasing company, make sure to get copies of the company's written policies; later, take steps to verify that temporary employees are properly paid and receive accurate wage statements.

11 The Basics Copyright 2011 BLR Inc. Job Terms Don't assume that the employee leasing company has adequately notified the temporary employee about the terms of employment, the expected job duties, or the nature of the commitment expected. Before the employee starts work, give the person a written description of the work he or she will be expected to do, how long you expect the arrangement to last, and a statement noting that the employment is "at-will.“ Make sure that the employee knows whether he or she will be considered exempt or nonexempt with respect to overtime. (Most temporary employees will be nonexempt.)

12 The Basics Copyright 2011 BLR Inc. Background Checks Obtain written verification from the employee leasing company that it has performed thorough reference and background checks, so that you don't inadvertently hire someone who has lied about his or her work history or has a problematic background (such as criminal convictions or prior sexual harassment complaints).

13 The Basics Copyright 2011 BLR Inc. Training Make sure temporary employees receive copies of your employee handbooks and written policies, and include them in training (such as sexual harassment and safety training). Not properly orienting employees about these matters can lead to accidents, lower productivity, complaints, and lawsuits. If you use contingent workers a lot, consider having a separate continent worker handbook that includes the workplace rules that apply to them (e.g., dress codes, safety and security, access to data). Such a document could help your legal defense if you are sued over trouble a temp worker caused (i.e., that worker can't say he or she wasn't told about the rules).

14 The Basics Copyright 2011 BLR Inc. Complaints Don't hand off the job of investigating and responding to complaints by or against temporary employees to the employee leasing company. You are responsible for what goes on in your place of business, and complaints involving temporary employees should be handled in the same manner as all employee complaints. Also, don't simply try to "return" a temporary employee who has made a complaint because you could find yourself facing a retaliation allegation.

15 Special Issues Copyright 2011 BLR Inc. Benefits Generally, you are not required to offer contingent workers the same benefits as employees. However, you must be very careful that they don't become eligible for benefits unintentionally! Review the way your benefits plans define eligibility. If they use basic terms such as "employee," you may have left yourself open for claims from temporary workers or interns. Instead, change these terms (e.g., "employees on the payroll to whom we issue a W-2").

16 Special Issues Copyright 2011 BLR Inc. Benefits – Health Care In general, most group health insurance plans spell out eligibility requirements including the number of hours an employee must work each week in order to be eligible to participate in the plan. Even though these employees are called part-time, if they work 40 hours a week for an extended period of time, the eligibility requirements might be met. It is important to review the plan and consult with your benefits consultant or attorney who can help interpret the requirements in the plan document. If the employee is eligible pursuant to the terms of the plan, it could be a violation of ERISA to deny benefits even with if you obtained a waiver from the employees. Again, a local attorney experienced in these matters will be able to advise the company on how to proceed.

17 Special Issues Copyright 2011 BLR Inc. Benefits – Vacation/PTO Whether contingent workers such as part-timers will be entitled to vacation or paid time off is typically a matter of company policy. Although not required, many employers offer a prorated amount of vacation for part-time employees who temporarily work full-time hours.

18 Special Issues Copyright 2011 BLR Inc. Benefits – Special Issues In the famed Microsoft case (1999), a federal appeals court ruled that Microsoft Corp. had to pay retroactive employee benefits (including stock options) to temporary employees hired through staffing agencies. The issues revolved around whether the use of "permatemps" - temporary employees who are engaged to work for the same employer in the same jobs for longer periods of time. Keep these tips in mind to avoid liability for providing benefits to temporary workers: Understand the impact of a "joint" employment relationship on benefits. The courts consider numerous factors in determining this type of relationship exists ("common law employees"), including how much control you retain over your temps' work, who provides their equipment, and how much discretion they have over hours and time of work. In most cases, long-term temps are employees under this test, even though a staffing agency hires and pays them, because you and the agency are legally considered "joint employers."

19 Special Issues Copyright 2011 BLR Inc. Benefits – Special Issues (In one case, the employer who hired a temporary worker via a temp agency was held liable for damages for refusing to reinstate her after she returned from maternity leave because, the courts ruled, the employer [not the temp agency] actually supervised her work, determined her schedule, and approved her maternity leave!) Beware the use of "permatemps." If you find yourself in a situation where you're engaging the same temps to do the same work for more than a few weeks or a couple of months, you should reassess the use of these temps. If you know upfront that you need long-term support for a project, for example, it may make more sense to hire your own part-time employees directly, on a seasonal or temporary basis.

20 Special Issues Copyright 2011 BLR Inc. Benefits – Special Issues Review the language in your benefit programs and contracts. In some cases, it's legal to exclude temps and contract workers from benefit plans, but you must define who is and isn't covered very precisely. However, your retirement programs can lose their favorable tax status if you exclude certain classes of employees, and stock purchase plans have special exclusion rules, so talk to an expert. Also, although its enforceability isn't clear, be sure temps and independent contractors sign written waivers of the right to receive benefits if they ever are determined to be employees. Monitor eligibility. The IRS permits certain restrictions such as Microsoft's limiting participation to employees who worked a certain number of hours per week for a defined period of time. The key, though, is to make sure that temps and contractors don't exceed these limits.

21 Special Issues Copyright 2011 BLR Inc. Benefits – Special Issues Check your math for qualifying for leave. For example, if employees are only eligible for family leave after they've worked for you for 12 months, what if a worker spent some of that time with you as a temp hired via a staffing agency? According to federal regulations and court rulings, temp time counts when calculating how long someone has worked for you for purposes of family leave eligibility. This issue goes back to the concept of "joint" employment, and it's very likely that California courts will reach the same conclusion - the time a worker spends as a leased or temporary employee counts as time worked for you when determining family leave eligibility. So, when an employee asks for family leave, you'll have to know when they started working for you, regardless of when they went on your payroll. One solution is to have a question on your employment application such as "Have you ever worked for this company, directly or through an employment agency? If so, when?" Then note this information in the employee's file.

22 Special Issues Copyright 2011 BLR Inc. Protecting Company Secrets Your policies on nondisclosure, information security, and the use of proprietary information should apply equally to both your core workers and your contingent workers. As a practical matter, try to structure the contingent job so as to limit the amount of proprietary knowledge involved in getting the work done. Disclose proprietary information or "trade secrets" only on a need-to-know basis, and otherwise keep such documents in a secure location. As a reasonable precaution, you may want give contingent workers only limited access privileges to confidential data (internal pay and benefits information, customer lists, marketing strategies, research and development protocols, etc.) on your computer network. You may also want software that requires double or triple passwords or with a call-back safety feature or other methods of providing a “fire wall.” Encryption (data scrambling) may be necessary in some situations.

23 Special Issues Copyright 2011 BLR Inc. Protecting Company Secrets If you are using a staffing vendor, insist that the vendor conduct a thorough background check before dispatching anyone to your worksite. Also, consider requiring all workers to sign a confidentiality agreement providing roughly as follows: The worker agrees that he or she will not, during or after the assignment period or duration of the project, disclose any confidential or proprietary information of the company to any person, firm, corporation, association, or other entity (other than to persons in the company) for any reason or purpose whatsoever (except as may be required by law), nor shall the worker make use of any such confidential or proprietary information for his or her own purpose or for the benefit of any person, firm, corporation, or other entity except the company.

24 Special Issues Copyright 2011 BLR Inc. Protecting Company Secrets For purposes of this section, the term “confidential or proprietary information” shall mean all information which relates to confidential or proprietary matters, including, but not limited to, the company's profile of prospective clients or current clients, business structure or organization of the company, details of the company's contracts and business matters, employee compensation, personnel evaluations, marketing strategy, pricing strategy, financial records, other company books and records, and other information as may exist from time to time which worker may have acquired or obtained by virtue of work performed for the company, or which he or she may acquire knowledge of during the performance of said work, and which is not generally known to others unrelated to the company, is not readily available to said others from sources other than the company, and is not in the public domain.

25 Special Issues Copyright 2011 BLR Inc. Terminating Your Relationship With Contingent Workers If you're using workers from a staffing vendor, you may be deemed responsible, as a co-employer with the vendor, for ensuring that they are treated according to the guarantees of Title VII of the Civil Rights Act and comparable state laws. For this reason, it's important to let the vendor conduct all performance appraisals, administer discipline when necessary, and take care of reassignments if you're dissatisfied with the performance of a particular person. This requirement should be stipulated in your written agreement with the vendor. Make sure that the contract also contains a termination clause if you're not happy with the overall service provided by the vendor.

26 Special Issues Copyright 2011 BLR Inc. Permanent Hires Employers that decide to hire a temp to fill a full-time position may have to absorb an additional cost – a liquidation or buyout fee (also known as a penalty or conversion charge). Under some contracts, the employer may agree to wait a minimum number of months before a temp can be hired away from an agency. Employers should be aware that at least some temporary firms may not want to lose skilled workers in whom the temporary agency has itself invested. The buyout fee is usually a percentage of the worker's annual salary. Iron out the liquidation fee and waiting period before you sign the contract. These issues may be negotiable, depending on how much the agency wants your business.

27 Special Issues Copyright 2011 BLR Inc. Liability for Wages and Legal Damages Legal issues may arise for you as the client when a staffing vendor goes out of business or for some reason fails to carry out the obligations of an employer (e.g., obtaining workers' compensation insurance or making timely tax withholding payments). The risk is that you may be held liable for the agency's lack of follow-through. Moreover, even when the vendor is still solvent, government agencies and/or the courts may in some instances redefine or reclassify the recipient of the services (that is, you as the client company) as an employer or joint employer, with the attendant legal obligations. With this in mind, you should be careful to separate your management responsibilities from those of the staffing firm. Blurring the distinction can result in an after-the-fact finding of an employer-employee relationship and trigger significant legal obligations and penalties. Further, in some instances you and the staffing firm may be held liable in the event that the firm violates employment discrimination laws.

28 Special Issues Copyright 2011 BLR Inc. Unions If you operate in a unionized environment, the federal National Labor Relations Board (NLRB) has ruled that a temporary employee doesn't have the right to join a union that represents the permanent employees of the temp's current employer unless the employer and the agency that placed the worker consent. (This is a change from earlier decisions such as a 2000 NLRB ruling that allowed bargaining units to combine temps with permanent employees.) In the 2004 H.S. Health Care decision, the NLRB said that bargaining units that combine employees solely employed by the regular employer with employees who are jointly employed by that employer and a supplier employer (or staffing agency) amount to "multiemployer" bargaining units. These units are permissible only if all employers involved consent. The reason for this, according to the NLRB, is that combining employees of different employers can give rise to significant conflicts among the various employers and groups of employees.

29 Special Issues Copyright 2011 BLR Inc. Unions This ruling doesn't preclude temporary employees from organizing a bargaining unit with other temps. Rather, the decision rests with you and the staffing agency as to whether temps can join or form a bargaining unit that also includes regular employees. Note, too, that if a multiemployer bargaining unit composed of temps and your regular employees is already in place and you never agreed to it, you may be able to petition the NLRB to decertify the unit. Keep in mind, though, that the new decision didn't address existing multiemployer bargaining units, so it's unclear whether a decertification petition would succeed.

30 Special Issues Copyright 2011 BLR Inc. Unique Rules Governing Unpaid Internships in California Poorly structured unpaid internship programs can violate federal and California minimum wage laws. The U.S. Labor Department (DOL) and the California Division of Labor Standards Enforcement (DLSE) recently addressed questions about when you must compensate interns. The DOL Test for Unpaid Internships In the spring of 2010, the DOL released a fact sheet on the interplay between internship programs and the federal Fair Labor Standards Act (FLSA). The information is designed to help determine whether interns must be paid minimum wage and overtime under the FLSA for the services they provide private employers. The FLSA – which governs minimum wage, overtime, and child labor – applies to employers in every state. Note, however, that California requires a higher minimum wage than mandated by the FLSA.

31 Special Issues Copyright 2011 BLR Inc. Unique Rules Governing Unpaid Internships in California In general, interns who receive training for their own educational benefit may do so without compensation. To qualify for this exclusion, the following six criteria must be met: 1.The internship, even though it includes actual operation of the employer's facilities, is similar to training that would be given in an educational environment. 2.The internship experience is predominantly for the intern's benefit. 3.The intern does not displace regular employees but works under the existing staff's close supervision. 4.The employer that provides the training derives no immediate advantage from the intern's activities, and the operations may actually be impeded on occasion. 5.The intern isn't necessarily entitled to a job at the conclusion of the internship. 6.The employer and the intern understand that the intern is not entitled to wages for time spent in the internship.

32 Special Issues Copyright 2011 BLR Inc. Unique Rules Governing Unpaid Internships in California The fact sheet elaborates on some of the most commonly discussed criteria: Similar to an educational environment. Generally, the more that an internship program is structured around a classroom or similar academic experience—as opposed to the employer's operations—the more likely that it will be considered an extension of the intern's educational experience. In the ideal situation, a college or university exercises oversight over the program and provides educational credit. For the predominant benefit of the intern. Interns benefit more directly from acquiring skills that can be used in multiple employment settings than skills that are particular to the employer's operation. On the other hand, if interns are engaged in the employer's operations or are performing productive work like clerical work or assisting customers, the fact that they might receive some benefits in the form of a new skill or improved work habits won't exclude them from the FLSA's requirements.

33 Special Issues Copyright 2011 BLR Inc. Unique Rules Governing Unpaid Internships in California Displacement of regular workers and supervision. Interns should be paid at least minimum wage and overtime if the employer uses them as substitutes for regular workers or to augment the existing workforce for specific time periods. If, however, the employer gives the interns job shadowing opportunities that let them learn certain functions under the close and constant supervision of regular employees— and the interns perform no or minimal work—the activity is more likely to be considered an educational experience. Job entitlement. Internships should run for fixed lengths of time that are established before they begin. Employers must not use them as a trial period for individuals seeking employment after the internship period. An intern in such an arrangement would be considered an employee receiving compensable training.

34 Special Issues Copyright 2011 BLR Inc. Unique Rules Governing Unpaid Internships in California California Law on Paying Interns In the spring of 2010, the DLSE issued an opinion letter discussing whether young adults enrolled in a particular educational internship program were employees subject to California wage and hour laws. In the letter, the DLSE noted that it has historically followed federal interpretations that recognize the special status of trainees and interns who perform some work as part of an educational or vocational program. It went on to cite the DOL's six criteria.

35 Special Issues Copyright 2011 BLR Inc. Unique Rules Governing Unpaid Internships in California Previously, though, the DLSE had articulated an "11-factor test" that consisted of the six DOL factors and the following five additional factors: 1.Whether clinical training is part of an educational curriculum 2.Whether the trainees or students do not receive employee benefits 3.Whether the training is general, so as to qualify the trainees or students for work in a similar business, rather than designed for a job with the employer offering the program (i.e., on completing the program, the trainees or students must not be fully trained to work only for the employer offering the program) 4.Whether the program's screening process is not the same as for employment, and does not appear to be for that purpose, but involves only criteria relevant for admission to an independent educational program 5.Whether the program's advertisements are couched clearly in terms of education or training, rather than employment, although the employer may indicate that qualified graduates will be considered for employment

36 Special Issues Copyright 2011 BLR Inc. Unique Rules Governing Unpaid Internships in California In the opinion letter, the DLSE applied only the DOL criteria and concluded the program at issue satisfied the six criteria – and the interns were exempt from California's minimum wage law. Check Yourself Improperly treating employees as unpaid interns can lead to liability for wage and hour violations, penalties for missed meal and rest breaks, violations of the California Labor Code, and unpaid employment taxes. We've provided a helpful "Checklist for Unpaid Internship Programs" (reflecting both the DOL and DLSE guidance) that you can use to assess whether you're complying with the above rules.

37 Special Issues Copyright 2011 BLR Inc. Unique Rules Governing Unpaid Internships in California Other ways to avoid problems with internships in California: Watch advertising. The California Labor Commissioner takes the position that ads for internships should clearly indicate that the program is for educational or training purposes. Use written agreements. One important way to help avoid disputes with interns and trainees is to have a written, signed agreement that spells out the terms and conditions of the training. It should state that the job is provided for the benefit of the intern, not you; that the intern won't be paid or receive any benefits; and that the person isn't an employee. Written agreements are useful for volunteers, too, so there's a clear understanding that they are donating their time without an expectation of pay.

38 Special Issues Copyright 2011 BLR Inc. Unique Rules Governing Unpaid Internships in California Use caution with stipends and benefits. You can give an intern a stipend, but it should be a set amount per month or other time period that is unrelated to the number of hours worked. Except for workers' comp coverage, it's safer not to provide traditional employee benefits. Also, make sure your benefit plans, to the extent possible, clearly exclude interns and trainees. Consider simply hiring the intern as a temp. Given the complexity of state and federal rules, you might find it easier to hire an intern on a short-term basis as a temporary employee and pay minimum wage rather than worry about complying with all of the technicalities.

39 Questions? Kristine E. Kwong, Esq. Musick, Peeler & Garrett, LLP One Wilshire Boulevard, Suite 2000 Los Angeles, CA (phone) (fax) Copyright 2011 BLR Inc.

40 © 2010 Employer Resource Institute. All Rights Reserved Thank You Recordings of this webinar and past presentations can be ordered by calling (800) Or visit for information. We hope you’ll join us again soon. Please be sure to complete your program evaluation. You’ll find a link to the evaluation inside your follow-up s from ERI.


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