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California's new wage theft law went into effect Jan. 1, 2016. The aim of the new law, Senate Bill (S.B.) 588, is to ensure that wage-theft victims can actually recover their unpaid wages.
Wage theft is defined as failing to pay workers for all of their work. It can take many forms and includes paying below minimum wage, failing to pay overtime, violating meal-and-rest-break requirements, and ordering employees to do off-the-clock work, according to Kevin de Leon, the California Senate president pro tem.
Even for businesses that try their best to comply with wage and hour laws, honest mistakes are a possibility. Employment lawyers advise all companies to take steps to protect themselves, such as brushing up on wage laws and trying to resolve problems at an early stage. The new law also has implications for senior managers and other high-level professionals because of the potential for personal liability.
According to a
report by the National Employment Law Project and the UCLA Labor Center, wage theft is “rampant” in California and across the nation. The report cited a survey of U.S. workers, which found that nearly 70 percent of low-wage workers encountered one or more pay violations during the previous workweek. This resulted in an estimated average loss of $2,634 annually.
Even when California workers win judgments against employers, the report found that they’re often “hollow victories” because many never collect their unpaid wages. According to the researchers, just 17 percent of workers who obtained a final judgment were able to collect their money during the period studied. To avoid paying, some employers transfer assets or change business licenses or names, the report found.
The new law is designed to fight these types of practices. If an employer fails to pay a judgment for unpaid wages, state regulators will be able to put a lien on the company’s property and levy the employer’s bank accounts, said Los Angeles employment attorney Allison Vasquez Saunders. Under the law, a company that fails to pay unpaid wages must obtain a bond, or else it could be barred from doing business, according to Saunders, of Ford & Harrison.
Also, individuals can be held personally liable for wage and hour violations. Under S.B. 588, an “owner, director, officer, or managing agent of the employer” may be held liable. A “managing agent” is a high-level manager who can influence policy for the organization, according to James McDonald, an Irvine employment attorney at Fisher & Phillips.
According to de Leon, the potential for individual liability will discourage business owners from “walking away from their debts to workers and starting a new company.”
Businesses need to be ready for the new law.
McDonald said the legislation focuses on “the handful of unscrupulous employers who don’t pay employees properly.” Nevertheless, lawyers are urging all companies to be aware of the provisions.
Wage theft is most common in the low-wage “underground” economy, according to Bob Jones, a San Francisco employment lawyer at Ogletree Deakins. For instance, it often affects farm laborers, garment industry workers and car wash employees. It is especially common in industries where undocumented workers are afraid to assert their rights, said Jones, who previously served as deputy secretary, special counsel for the California Labor and Workforce Development Agency.
While some businesses intentionally engage in wage theft, others might make unintentional errors that can land them in trouble, Jones observed. For example, pay statements have many technical requirements, like showing total hours worked. The pay statements must not only show all these specific items, but also be accurate. Jones said this is one area where employers can make honest mistakes.
McDonald also said that California’s wage and hour laws are complicated, and companies can make errors despite their best efforts. For instance, an employer might legitimately believe that a worker should be classified as exempt, but a dispute could later arise over that issue.
With all of this in mind, here’s a course of action for employers:
Complying with wage laws: According to Jones, companies should take another look to ensure they’re complying with all wage and hour requirements of the California Labor Code, along with all applicable wage orders.
Personal liability: Employers should be aware that errors could have personal ramifications on senior people in the company because the law allows the Labor Commissioner to hold individuals liable, Jones emphasized.
Resolving wage claims: Know what to do if an employee files a wage claim with state regulators. If an employer receives notice of a claim, the business should take it seriously and try to get it resolved at an early stage, McDonald said. Typically, the parties first attend an informal conference. If necessary, a formal hearing—known as a Berman hearing—is held later. Jones said that S.B. 588 will lead to increased awards in Berman hearings.
Legal counsel: Although not legally required, it’s advisable for an employer to be represented by a lawyer during a formal hearing, according to McDonald. He noted that evidence and testimony are taken, and the testimony is under oath and recorded. It’s also a good idea for a company to have an attorney present at an informal conference, McDonald added.
Contract labor: Employers should ensure that any business providing them with contract labor is complying with the wage laws, Saunders said. An employer using contract labor may now be on the hook for any violations incurred by the business, according to Saunders.
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