5 Reasons California Employees Sue Their Employers

With labor laws in California heavily favoring employees, and settlements in the state often reaching into the millions of dollars, employment lawsuits have become more commonplace than ever before. It’s clear that there are certain claims that are more common than others. As the California Supreme Court continues to come down hard on employers, it’s important to know what those common claims are in order to avoid being caught up in similar litigation. Below are the top 5 reasons California employees sue their employers.

1. Missing Information on Wage Statements

With the use of direct deposit being so commonplace, it may seem unlikely that employees are even reviewing their wage statements regularly. Regardless, employers must still ensure that wage statements comply with California Labor Code which requires employers to include very detailed information. 

Labor Code Section 226(a) obliges employers to report the following nine items on an itemized statement that accompanies a wage payment:

• Gross wages earned in the pay period.
• Total hours worked in the pay period. This requirement does not apply to employees who are exempt from the payment of minimum wage and overtime.
• The number of piece-rate units earned and any applicable piece rate if the employee is paid on a piece-rate basis.
• All deductions from the employee’s wages. Deductions made on the employee’s written orders may be aggregated and shown as one item.
• Net wages earned in the pay period.
• The inclusive dates of the pay period, meaning the start and end date of the pay period.
• The employee’s name and only the last four digits of the employee’s Social Security number or employee identification number.
• The full name and address of the legal entity that is the employer.
• All applicable hourly rates in effect during the pay period and the corresponding number of hours worked at each hourly rate.

Additionally, Section 246(h) requires that employers notify employees each pay period of the paid sick leave they have available for use. Employers can include the balance on a wage statement or on a separate written document provided to employees when they are paid.

Section 226(e) adds that “an employer who knowingly and intentionally fails to comply with the rules must pay penalties to the injured employee.” The penalties start at $50 for the first violation and increase $100 for each subsequent violation, not to exceed $4,000. However, when seeking civil penalties for labor code violations under the Private Attorneys General Act (PAGA), employees don’t even need to show that the violation was “knowing and intentional” or that they (or another employee) suffered an actual injury. 

Recently, a California District Court judge ruled against an employer in a PAGA case that involved non-compliant wage statements. In the case of Robert Magadia v. Wal-Mart Associates, Inc., the judge awarded the plaintiffs approximately $48 million in statutory damages and $54 million in penalties, basing the decision heavily on the evidence of wage statements that identified a lump sum for additional overtime that individuals received as a result of bonuses without breaking down how that sum was calculated.

2. Meal and Rest Periods

California has very strict requirements regarding meal and rest periods for employees based on the type of employee and the hours an employee is scheduled or expected work.

• Nonexempt employees must be granted a meal period of no less than 30 consecutive minutes for any work period over five hours. 
• The meal period must begin before the end of the fifth hour worked. The worker may not start a sixth hour of work without first having their meal period.
• If the work period does not exceed six hours, the meal period may be waived by mutual consent of both the employer and employee. Meal period waiver agreements must be properly documented.
• Employees who work more than 10 hours in a shift must be given a second meal period of not less than 30 consecutive minutes, beginning before the end of the tenth hour worked. 
• Employees who will work fewer than 12 hours during their shift may waive the second meal period if they did not already waive the first. The waiver should be in writing and completed prior to when the second meal period should have been taken.
• Employers must not impede or discourage employees from taking their meal periods.  
• Employees must be relieved of all duty during meal and rest periods. These breaks can not include any job-related actions such as putting on or taking off protective gear, answering calls or emails or consulting other employees. 
• Employees should be permitted to leave the employer’s premises during the period and should not return to the work area of the premises until the meal or rest period is over.

If an employer fails to provide an employee with a meal period that is compliant with the above requirements, the employer must pay the employee one hour of pay at the employee’s regular rate of compensation for each workday during which this type of violation occurred. Similar to wage statements, employees can sue under PAGA for meal or rest period violations, resulting in larger penalties for the employer.

3. Calculating Overtime on Bonuses

Offering bonuses to employees based on quality, quantity or efficiency of production or hours worked is a great way to boost productivity, increase morale and reward employees. However, when an employer offers this type of bonus on a regular basis and employees have come to expect it, the bonus is considered non-discretionary. Non-discretionary bonuses must be included in the regular rate used for determining overtime pay.

Federal law allows employers to calculate the regular rate of pay by taking an employee’s hourly rate and multiply it by the total hours worked (including overtime), add in the non-discretionary bonus and then divide that again by the total hours worked. However, California rules differ slightly. According to the California Supreme Court, the employer must divide only by the total non-overtime hours worked during the earning period. This small difference in calculation can make a big difference in pay for the employee and lead to litigation for an employer that miscalculates.

4. Working “Off the Clock”

Any time an employee spends that is “subject to the control of the employer” is compensable time according to the California Labor Code. The employee is therefore entitled to be paid for the hours worked, whether or not the employer “approved” this time or was aware that it occurred off the clock.

In one lawsuit, brought by a California employee against his employer, Starbucks, the employee argued that he was entitled to be paid for tasks that he routinely performed off the clock at the end of his workday, amounting to nearly 13 hours of work performed over 17 months. The circuit court decided against the employee, stating that the federal “de minimus” rule exempts employers from paying employees for small amounts of time when the employer can show that “the bits of time are administratively difficult to record.” However, the California Supreme Court disagreed with the circuit court’s ruling, arguing that California laws on compensation offer greater protection to employees than federal law, requiring payment for “all hours worked.” 

In order to protect themselves, all California employers need to have a policy on performance of off-the-clock work. This policy should clearly define what constitutes off-the-clock work and should impede employees from doing so. If an employee must regularly perform a task after clocking out such as setting an alarm and locking a door, that time should be added to their pay check accordingly.

5. Misclassification

After the California Supreme Court ruled that the state’s strict “ABC” test for determining worker classification can be applied retroactively, it opened up another level of possible litigation for California employers. Essentially, the state presumes that a worker should be classified as an employee, unless the employer can prove otherwise by showing all of the following:

• The worker is free from employer control.
• The worker performs tasks that are outside the usual course of the company’s business.
• The worker is usually engaged in an independently established trade, occupation or business.

Employers have to remain most vigilant in these five areas to protect themselves against judgments and settlements that can easily reach into the millions of dollars. Partnering with a Professional Employer Organization (PEO) with expertise in compliance with California labor regulations is a great way for California business owners to bring themselves up-to-date and remain compliant as the state laws continue to update and change.