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Thompson Hine LLP, a full-service business law firm with approximately 400 lawyers in 8 offices, was ranked number 1 in the category “Most innovative North American law firms: New working models” by The Financial Times and was 1 of 7 firms shortlisted for The American Lawyer’s inaugural Legal Services Innovation Award. The firm has been recognized by the National Law Journal as a Legal Technology Trailblazer and featured by Bloomberg for its innovative service delivery models, which drive accuracy and predictability. The firm’s commitment to innovation is embodied in Thompson Hine SmartPaTHTM – a smarter way to work – predictable, efficient and aligned with client goals. For more information, please visit ThompsonHine.com and ThompsonHine.com/SmartPaTH.

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As we head into the last quarter of 2024, it may be a good time to review these notable employment issues if your company has operations in California.

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#1. Individual Discrimination and Harassment Claims

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California is known for its employee-favorable courts, particularly when it comes to individual cases brought under the Fair Employment and Housing Act (FEHA), Govt. Code section 12965(b). In addition to substantive provisions, the FEHA provides for the recovery of attorney’s fees, costs and expert witness fees. These awards override standard cost-recovery provisions that apply to civil actions generally (CCP §1032). Unfortunately, this fee statute is one-sided. For prevailing employees, attorney’s fees are recoverable unless special circumstances would make the award unjust. For prevailing employers, these fees are not recoverable unless the court finds that the plaintiff’s action was frivolous. Therefore, even the weakest of claims gets filed in the hopes of securing a settlement at virtually no risk to the plaintiff employee.

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In light of this risk of FEHA actions, employers should implement anti-discrimination and harassment policies and trainings and promptly address complaints before a claim can be filed. In addition, we have recently seen an increase in claims of harassment and discrimination from the LGBTQ+ community, so training about sensitivity to LGBTQ+ issues can be helpful.

Another critical issue for California employers is correctly classifying workers as either employees or independent contractors. Though many employers seek to avoid the costly burdens of payroll taxes, workers compensation insurance, and benefits such as health insurance retirement plans and compliance with California’s ever-changing sick leave laws by hiring independent contractors instead of employees, there are many expensive risks. With Assembly Bill 5 (AB 5), the “ABC” test described in Dynamex Operations West, Inc. v. Superior Court of Los Angeles, 4 Cal.5th 903 (2018) became statutory law, and there is now a heavier burden on employers to establish the classification of workers as independent contractors. What used to be a balancing test of many factors to create an independent contractor relationship has now been limited to three characteristics which the employer must establish: (A) the worker is free from control and direction in the performance of their work; (B) the worker performs work outside the usual course of the hiring entity’s business; and (C) the worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed. The most difficult factor to overcome is (B), since employers can no longer engage independent contractors to work on “regular” business matters. For example, a bakery can hire a plumber as an independent contractor, but a baker or cashier must be hired as an employee. Misclassification can lead to significant penalties, including back wages, taxes, and fines. Employers should conduct a thorough review of their worker classifications and seek legal guidance if there’s any uncertainty.

Another issue that requires review on a yearly basis is the classification of employees as exempt or nonexempt. Exempt employees are those who are not covered by the overtime pay and certain other labor law requirements under both federal law (Fair Labor Standards Act or FLSA) and California law (the California Labor Code). To be properly classified as exempt, an employee must meet both parts of a two-part test: (1) the salary test and (2) job duties test. In California, the minimum salary for an exempt employee must be at least twice the state minimum wage for full-time employment (40 hours per week). Thus, every time the minimum wage increases, so does the minimum salary threshold for exempt workers. For 2024, for employers with 26 or more employees, the minimum annual salary is $66,560, which will increase to $68,640 on January 1, 2025.

The duties test depends on whether the employee would fall under the following job category:

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There are exemptions for certain employees, such as computer professionals, creative professionals, and outside salespersons, who have specific job descriptions. Misclassifying an employee as exempt when they should be nonexempt can result in significant legal consequences for employers, including liability for unpaid overtime, penalties, and damages. It's crucial for employers to correctly classify employees based on their duties and compensation structure.

Among the biggest changes in 2024 are the amendments to the PAGA enacted in SB92/AB 2288. These statutes reformed the PAGA in the following ways:

The 2024 amendments to the PAGA statute represent a significant shift in California’s labor law landscape. These changes aim to balance the interests of employers and employees by addressing concerns about excessive penalties, increasing transparency, and modifying procedural aspects of PAGA claims. Employers and employees alike should stay informed about these updates to navigate the evolving legal environment effectively.

https://admin.thompsonhine.com/wp-content/uploads/2024/09/Thompson-Hine-Newsletter-Business-Law-Update-September-2024.pdf

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This article may be reproduced, in whole or in part, with the prior permission of Thompson Hine LLP and acknowledgement of its source and copyright. This publication is intended to inform clients about legal matters of current interest. It is not intended as legal advice. Readers should not act upon the information contained in it without professional counsel.

This document may be considered attorney advertising in some jurisdictions.

Top 5 California Employment Concerns

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