Employment Law is a complex network of federal and state laws, some of which overlap and some of which actively contradict each other. Stop Unpaid Wages specializes in the various practice areas within the wider category of Employment Law. These practice areas are related, sometimes directly and sometimes indirectly, to unpaid wages cases. Retaining a legal firm that is knowledgeable, experienced, and prepared gives you a fighting chance to recover your unpaid wages.
Misclassifying Employees as “Exempt”
There are two basic classifications of employees in labor law: exempt and non-exempt. Non-exempt employees are afforded all the protections and rights that are guaranteed under the various wage and hour laws. However, not all provisions in wage and hour laws apply to exempt employees. One of the most common mistakes (whether intentional or accidental) that an employer may make is to misclassify their employee as exempt in order to get around paying them overtime, minimum wage, and/or providing meals and breaks. This is also known as 1099 misclassification or independent contractor misclassification.
The most commonly misclassified employees are:
- Information technology (IT) employees. This includes software engineers and/or programmers.
- Transportation employees. This includes drivers for delivery trucks, buses, shuttles, and big-rigs as well as courier and messenger services.
- Low-level managers in the food industry or retail sectors who do not do a lot of managerial and/or administrative work .
- Employees who are frequently on-call. This includes first responders like firefighters, paramedics, police officers working a street beat, and/or health care practitioners in an Emergency Room.
There are several new laws that explicitly prohibit willfully misclassifying non-exempt employees as exempt. One of these is California Senate Bill 459 (SB 459), enacted on October 09, 2011. It enforces stiff penalties for any employer who attempts to skirt around paying their employees their earned wages. These penalties are assessed by the Labor and Workforce Development Agency and range from $5,000 to $15,000 per violation. They can even be as high as $25,000 per violation if the employer displays a pattern of willfully misclassifying their employees. SB 459 also made it illegal to deduct any compensation and/or charge any fees for employees who have been misclassified.
California Labor Code also strictly forbids this type of misclassification. It is specifically delineated in Section 226.8 of the Labor Code, effective January 01, 2012. Under this section of the Labor Code, employers may face additional penalties and/or fines for misclassifying an employee. However, it is similar to SB 459 in that any legal action taken against the employer in question must prove that the employer “willfully” made this misclassification. In legal terms, this means that they “voluntarily and knowingly” did so in order to pay the employee less. If the employer made a good faith error, meaning that they accidentally and unknowingly misclassified the employee, the violation would fall short of triggering the application of Labor Code 226.8.
However, even good faith errors may result in an unpaid wages complaint and/or lawsuit. The fact that the employer made an honest mistake may ameliorate the penalties they face but it does not change the fact that the aggrieved employee is still owed unpaid wages. Any misclassification case falls squarely under the general practice area of unpaid wages and an aggrieved employee has every right to recover said wages.
Independent Contractor versus Non-Exempt Employee
An independent contractor is the most common type of exempt employee, with approximately 12.5 million in the United States alone. They are defined by the high level of control they have in how to do their jobs. Section 3353 of California Labor Code formally defines independent contractors and Section 3357 of the Labor Code explicitly differentiates between them and “regular” (non-exempt) employees. Federal laws also treat independent contractors and non-exempt employees as two distinct entities with different protections and rights afforded under wage and hour laws.
Determining if an employee is an independent contractor also falls under the jurisdiction of the Internal Revenue Service (IRS). This is because their tax liabilities are distinct from non-exempt employees. Independent contractors pay the entirety of their Medicare (FICA) and Social Security taxes, whereas regular employees split these taxes 50-50 with their employer. Furthermore, independent contractors must provide all their own work tools, such as a desk, computer, and so on.
Furthermore, independent contractors (exempt) get a different tax form versus regular employees (non-exempt). Independent contractors must use 1099 tax forms and are responsible for calculating and paying their own tax costs (as well as not having any benefits provided to them by the employer). Regular employees fill out W2 forms and are usually eligible for benefits through the company in question. Consequently, there are three different tests for determining if an employee is an independent contractor or a regular non-exempt employee. They are:
- The “control test” used by the IRS. In this case the IRS examines the case to determine if the employer controls how the employee executes the specifics of their job. This control may be behavioral, as in the employer controls the employee’s behavior by enacting various policies, or financial, as in the employer pays for the necessary tools and/or equipment required for the job as well as how the worker’s pay is calculated.
- The “manner and means test” used by the state of California. If the employer controls the manner and means by which the employee does their job, then that employee is not an independent contractor.
- The “economic realities test” used in federal cases. The federal regulatory agencies determine that economic realities, rather than contractual labels, are what determine an employee’s exempt or non-exempt status. It is very similar to the matter and means test.
There are so many overlapping policies and protocols in these unpaid wages cases that retaining a skilled legal team is an absolute must to potentially receive the compensation that is owed to the aggrieved employee. At any given time various federal, state, and local laws may be in play. Even determining if an employee is an independent contractor is an intricate process with many moving parts.
Some businesses are open on a continuous basis, including nights, weekends, and even holidays. In situations like these, an employer may use what is called shift pay to entice certain employees to work the less desirable shifts. Shift pay, also known as shift deferential, is essentially a premium paid on top of the regular wages. It is used to compensate employees for the extra effort and inconvenience of working these less desirable shifts.
Any agreement to pay this shift deferential is between the employer and the employee (or the employee’s representative in any applicable union). The Fair Labor Standards Act (FLSA), which is the primary federal wage and hour law, does not require that an employer pay extra for this shift deferential. It is based entirely on the employment contract or agreement set forth when the employee was hired. If the employer has violated the terms of this contract, than the employee has every right to recover these unpaid wages.
However, there is a wage order from the California Industrial Welfare Commission (IWC) that guarantees a shift deferential for minimum wage employees who work what is known as a split-shift. This is whenever an employee is required to break up their work day with a gap in their work schedule that is longer than a standard meal break. It must be for the benefit of the employer and cannot be requested by the employee. If the employer requires that the employee work a split shift, then IWC wage order guarantees one hour pay at the state minimum wage (or local minimum wage if it is greater). It has no bearing on overtime pay. IWC wage orders are enforced by the California Department of Industrial Relations (DIR), Division of Labor Standards Enforcement (DLSE).
An employer’s failure to pay either an agreed-upon shift deferential or the split-shift premium is grounds for an unpaid wages case. The aggrieved employee is entitled to recovering said unpaid wages by either making a complaint with the DLSE and/or filing a lawsuit in civil court.
Wage and hour laws allow an employee to take regular rest breaks. Federal law explicitly guarantees a paid ten (10) minute rest break for every four (4) hours worked. If the employer requires that the employee remains on-call or do work during these rest breaks, that would constitute “working off the clock” and would be a violation of wage and hour laws. Furthermore, the FLSA even considers breaks of up to 20 minutes to be compensable.
There was a recent lawsuit brought by the Department of Labor (DOL) against a telemarketing firm (American Future Systems) that was requiring its employees to clock out every time they took even a short restroom break. The company lost the lawsuit as the DOL successfully argued that such breaks are entirely reasonable and in fact promote efficiency and high morale amongst the staff. Eventually American Future Systems was found to be held liable for over 1.75 million dollars in penalties and unpaid wages for instituting this unpaid break policy.
This kind of policy is a clear violation of the Fair Labor Standards Act. Furthermore, a wage order from California's Industrial Welfare Commission (IWC) considers restroom breaks to be independent from regular rest breaks as long as the employee uses them in a reasonable manner. The IWC also further requires there to be additional concessions made for employees who may have a disability that requires them to use the restroom more frequently or for longer periods of time than the average person. The employer may only limit the employee’s restroom breaks insofar as to ensure that they are reasonable and that the employee is not away from their work station for excessive lengths of time.
If an employer violates this provision, the employee is entitled to one (1) hour of additional pay per each day that they were denied their required breaks.
Backpay refers to the difference between what an employee was actually paid and what they should have been paid. It is essentially another term for “unpaid wages”. There are both federal and state laws that protect the employee from being denied their backpay. For example, the Fair Labor Standards Act (FLSA), a federal law, requires that in a case where an aggrieved employee has been unlawfully deprived of their wages, then they must be paid their backpay.
The FLSA provides two basic ways for an aggrieved employee to make a case to receive this backpay. It should be noted that both of these are best done with legal representation, even if the case or lawsuit never makes it to civil court, as there are various wage and hour laws that are complex and potentially confusing for a layperson. The federal department that supervises the payment of backpay is the Wage and Hour Division (WHD) in the United States Department of Labor (DOL).
First, the Secretary of Labor (from the DOL) may file a lawsuit on behalf of a single plaintiff or even a class-action lawsuit on behalf of multiple aggrieved employees. This is precisely what happened in the case of American Future Systems and the unpaid breaks they were requiring employees to take. As part of this lawsuit, the Secretary of Labor may also file what is known as an injunction (a judge’s order to cease some kind of activity) to forbid an employer from violating wage and hour provisions in the FLSA.
Secondly, the employee may file a private lawsuit to recover both their backpay and what are known as liquidated damages (as well as incidental costs incurred during the suit, like fees for the attorneys and courts). Liquidated damages (also known as ascertained damages) are the damages that the aggrieved party is entitled to upon breach of a contract. In this case, the contract is the employment contract between employer and employee while the breach is the failure to pay the employee their earned wages and/or benefits.
However, if the Department of Labor has already filed a lawsuit, then the employee may not file a private suit concurrently. This is precisely why it is so crucial to retain legal counsel as they will know best how to ensure the highest likelihood that the backpay is received. Furthermore, filing a suit under the FLSA has a statute of limitations of two (2) years, meaning that the employee must pursue the legal action no later than two (2) years from the date of the violation. In cases where the employer willfully (or even maliciously) withheld backpay, the statute of limitations is three (3) years.
Furthermore, state law also entitles employees to recover their backpay. California Labor Code, Section 1194, explicitly grants the right for any aggrieved employee to file a complaint with a state or federal regulatory agency and/or file a lawsuit in order to recover their unpaid wages. By law, once an employee has done the work to earn the wages, those wages legally belong to them and they may pursue legal action to have their employer pay them what is owed.
There are generally two regulatory bodies in California that deal with these violations: the California Division of Labor Standards Enforcement (DLSE) and the California Department of Industrial Relations (DIR). There are so many agencies, on both federal and state levels, that it can easily become overwhelming for the average person. Interacting and working with all these various governmental entities is best left to an experienced legal team.
Under California Labor Code, the types of wage and hour violations that will result in an employee being owed backpay include:
- Minimum wage and/or overtime violations
- Unpaid rest and/or meal breaks as well as denying employees restroom breaks
- Unpaid sick days
- Misclassifying the employee as exempt
- Requiring the employee to work “off the clock”
- Not paying reimbursements for work expenses
- Denial of benefits that the employee is entitled to (benefits are considered wages too)
Furthermore, the statute of limitations to file a lawsuit under California Labor Codes is dependent on the specifics of the case. For most unpaid wages cases, it is three (3) years. However, if the case is based upon a breach of contract, then it can be either two (2) years (in cases where there was only an oral agreement) or four (4) years (in cases where there was a written contract).
Failure to pay overtime is a clear violation of wage and hour laws. Unlike shift pay, which is based on the employment contract, overtime pay is guaranteed under the Federal Labor Standards Act (FLSA). If an employee has been shorted on their overtime hours, they are entitled to whatever backpay they have earned. The specifics of the case and the amount shorted will determine if an attorney deems it best to pursue the lawsuit with a single plaintiff or multiple plaintiffs (otherwise known as a class action lawsuit).
California Labor Code, Section 510 LC, clearly states that non-exempt employees must be paid 1.5 times their regular wage for any time worked in excess of eight (8) hours in a single workday and/or forty (40) hours in a single workweek. If the employee works seven (7) days in a row, then they receive 1.5 times their regular wage for the first eight (8) hours of work on that workday. Furthermore, employees are paid two (2) times their regular wage for any work done in excess of twelve (12) hours in a workday or eight (8) hours on that seventh consecutive day in the workweek.
There have been cases in the past where an employee was pressured to work for less and not accept overtime pay. When they eventually filed an unpaid wages claim, the employer argued that the employee had knowingly agreed to a lower rate of pay. The courts deemed this oral agreement non-binding and unlawful and still required the employer to pay the employee’s overtime backpay.
However, the FLSA, Section 13(a)(1) states that professional, executive, administrative, and/or outside salespeople are exempt from both minimum wage and overtime provisions. These types of employment positions are colloquially referred to as white-collar jobs. Furthermore, Section 13(a)(17) of the FLSA also states that certain types of computer professionals are exempt as well. Unscrupulous employers may try to argue that an employee is exempt by misclassifying them. In these cases, it is best to retain a legal team that can successfully argue otherwise and secure any backpay owed to the aggrieved employee.
Wrongful Termination and Retaliation
Under California Labor Code, Section 2922, all workers are employed under an at-will system whereby they can be fired by their employer at any time and for any reason. There can even be massive layoffs in a large company for no other reason than to cut operating costs. However, there are exceptions to this at-will system. When an employee is unlawfully terminated, it is considered to be wrongful termination.
An employer may not fire an employee for any discriminatory reason, such as race, age, or medical condition. They may also not fire an employee for taking a legally protected leave of absence such as disability, jury duty, military service, and/or worker’s compensation. There is also the Family and Medical Leave Act (FMLA), a federal law, and the California Family Rights Act (CFRA), a state law, that protect employees who need to take parental, medical, and/or family leaves. If the employee is wrongfully terminated for taking one of these leaves, they may be entitled to backpay. However, the FMLA and CFRA sometimes contradict each other. This necessitates retaining a legal team with substantial knowledge of the various practice areas in Employment Law.
Furthermore, under California Labor Code, Section 98.6 it is illegal to fire an employee (also referred to as a whistleblower in this case) in retaliation for reporting wage and hour violations and/or filing a lawsuit to receive backpay. There are other forms of retaliation that are also considered illegal under the Labor Code, including demoting the employee, reducing their work hours, and/or transferring them to a different department. It is also illegal for the employer to create such an inhospitable and hostile work environment that the employee has no choice but to quit. This is legally referred to as constructive wrongful termination.