Labor and Employment Law Compliance and Liability Prevention for Employers

California labor and employment laws are considered one of the most employee-friendly of the nation. Frequent legislative update and aggressive enforcement of such laws make for a constantly evolving legal landscape that employers must navigate cautiously. The establishment of compliant employment and labor law practices is essential to avoiding liability. Employers are advised to follow these steps to ensure employment and labor law compliance:

  • Maintain a regularly updated handbook
  • Conduct a yearly labor and employment law compliance audit
  • Conduct regular harassment prevention trainings
  • Obtain Employment Practices Liability Insurance (EPLI) coverage

Maintain a Regularly Updated Employee Handbook

The first step in preventing employment liability is to draft a compliant employee handbook. One of the main functions of a handbook is to ensure clear and consistent communication of company standards, policies, and expectations to employees. Among many other benefits, a well-drafted and regularly updated handbook demonstrates the company’s commitment to complying with state and federal laws. To ensure proper communication to employees, employers should make handbooks available to all employees upon hire and require signed acknowledgment of receipt, review, and understanding.

Contractual Nature of Employment: At-Will Relationship

An essential component of an employee handbook is making clear the contractual i.e. at-will nature of the employment relationship. Employment-at-will means that employment and compensation may be terminated with or without cause and with or without notice at any time by the employee or the employer. At-will language in a company handbook provides employers with protection against wrongful termination lawsuits and informs employees that the employer does not provide any guarantee of continued employment.

Equal Employment Opportunity

Handbooks are particularly useful in ensuring compliance with any laws requiring the development and distribution of written policies or notices. California employers covered by the Fair Employment and Housing Act (FEHA) have an affirmative duty to take reasonable steps to prevent and promptly correct discriminatory and harassing conduct and to create a workplace free of such conduct. To meet this duty, an employer is required to develop and implement a compliant written harassment, discrimination, and retaliation policy, and provide proper notice of the policy to all employees. Proper notice is accomplished by the distribution of the policy to all current and future employees in English (and in alternative languages for workforces in which ten percent or more of workers speak a language other than English). The written policy must specifically:

·         List all protected groups under the FEHA;

·         Ensure every position is filled without regard to all protected groups;

·         Allow employees to report to someone other than a direct supervisor;

·         Instruct supervisors to report all complaints;

·         State that all complaints will be followed by a fair, complete and timely           investigation;

·         State that the employer will maintain confidentiality to the extent possible;

·         State that remedial action will be taken if any misconduct is found;

·         State that employees will not be retaliated against for complaining or participating           in an investigation; and

·         State that supervisors, co-workers, and third parties are prohibited from engaging in                  unlawful behavior under the FEHA.

Leaves of Absence: Paid and Unpaid

An employee handbook provides valuable legal protection in regards to leaves of absence. In general, employees are entitled to leaves of absence for the following reasons: pregnancy, parental and adoption responsibilities, illness, family emergency, bereavement, to serve on a jury or as a witness, and to vote. Leaves can be with or without pay. Navigating leaves of absence in California can be a huge challenge for employers due to the interplay between the state's multiple leave laws, federal laws, and employer policies. California employers must consider both state and federal laws, such as the California Family Rights Act (CFRA), California Pregnancy Disability Leave (PDL), and the Family and Medical Leave Act (FMLA). Medical leaves of absence specifically, may involve consideration of disability leave under the California FEHA, California workers' compensation laws, and the Americans with Disabilities Act (ADA). Therefore, employer handbooks should provide employees with a clear overview of California leave laws and, if applicable, the interaction of these laws with the federal requirements.

Employee Classifications: Wage and Hour; Contractor

California employers are subject to one of the most regulated workplaces in the nation. Employers must comply with both the federal Fair Labor Standards Act (FLSA) and state laws and regulations. It is essential that employer handbooks layout the definitions of exempt and non-exempt employees, full-time and part-time employees, temporary employees, and independent contractors. Employers must be aware of the difference between an employee and an independent contractor. An employee is hired by a company to perform specific work at the direction of the employer. Employees are paid an hourly wage or a salary and may be subject to overtime. Employees are taxed on their income and employers must also withhold federal income taxes, state income taxes, and Federal Insurance Contributions Act (FICA) taxes. On the other hand, an independent contractor is an independent business person who runs his or her own business, but contracts to perform specific work for another business. Employers do not withhold federal income taxes, state income taxes, or FICA taxes from the amounts paid to independent contractors. To best protect against wage and hour violations, employers should have clear and concise employee classifications set forth in their employee handbooks.

Trade Secret and Confidential Proprietary Information

Employers must take sufficient steps to protect trade secrets and confidential proprietary information. During the course of their duties, employees may be advised of certain confidential business matters and affairs of employers, regarding business practices, customers, suppliers, and employees. Employee duties may also place employees in a position of trust and confidence with respect to certain trade secrets and other proprietary information relating to the employer and not generally known to the public or competitors. Such proprietary information includes customer information, pricing information, product and service information, competitive strategies, marketing plans, personnel information, and financial information. Employers should use their handbooks to tailor their protective measures to the particulars of their business model and their specific industry as a whole.

Conduct Regular Employment and Labor Law Compliance Audits

In addition to establishing a legally compliant employee handbook, it is equally important to ensure that workplace practices are reflective of such policies. To reduce exposure to employment claims and liability, employers are advised to conduct regular employment and labor law audits. Such audits may take place yearly, at the same time as the handbook update, or every two years. A comprehensive audit should cover recruitment and hiring policies and practices; assignments, promotions, transfers, and evaluation policies and practices; existence and components of training programs; wage and hour compliance; leaves of absence policies and practices; record keeping and responsibility; communication of policies and practices; employment handbook; written policy review; and individual contracts. Conducting regular audits ensures the integrity of a business and puts employers on notice of any inappropriate or fraudulent activity.

Conduct Regular Harassment Prevention Trainings 

Workplace harassment claims are among the most common and publicized sources of liability for employers. Apart from the duty to prevent and promptly address workplace harassment, California employers with at least 50 employees or independent contractors are required to provide two hours of sexual harassment prevention training to all supervisory employees once every two years or within six months of an employee taking a supervisory position. The regulations list the particular format in which the trainings must be presented. The training must be provided in a classroom setting, through interactive E-learning, or through a live webinar. Further, such trainings must include questions to assess learning, skill-building activities to assess understanding, and application of hypothetical discussion questions to assess knowledge of harassment.

In summary any training must explain: The definition of sexual harassment under the FEHA and Title VII of the federal Civil Rights Act of 1964; The statutes and case-law on prohibiting and preventing sexual harassment; The types of conduct that can be sexual harassment; The remedies available for victims of sexual harassment; Strategies to prevent sexual harassment; Supervisors’ obligation to report harassment; Practical examples of harassment; The limited confidentiality of the complaint process; Resources for victims of sexual harassment, including to whom they should report it; How employers must correct harassing behavior; What to do if the supervisor is personally accused of harassment; The elements of an effective anti-harassment policy and how to use it; “Abusive conduct” under Government Code section 12950.1, subdivision (g)(2); and Gender identity, gender expression and sexual orientation in the context of sexual harassment prevention.

Although not mandated for smaller employers, a practice of holding regular company-wide anti-harassment training sessions demonstrates the employer’s commitment to complying with anti-harassment laws and assuring employees that unlawful harassment is not tolerated.

Obtain Employment Practice Liability Insurance (EPLI) Coverage

Employers may also wish to consider obtaining EPLI coverage. EPLI protects an insured organization against major litigation costs and liabilities associated with claims of wrongful termination, harassment, discrimination, and retaliation. Additionally, some EPLI policies can also include coverage for other claims such as wage and hour, leaves of absence and related disability issues. It is important for employers to be aware of the different EPLI policy options available and to understand the scope of coverage for each option.

In selecting coverage, it is important to ensure that the EPLI policy specifically permits an employer to select its counsel for representation.  Conflicts of interest can exist between an insurance carrier and the insured employer.  The employer’s attorney should have only the employer’s best interest in any litigation or dispute resolution situation.  This issue should be carefully discussed and understood prior to securing EPLI protection.  Having worked with multiple insurance carriers of the last several decades, PKWH is uniquely qualified to assist in making these important decisions to protect against litigation expense and liabilities.

Calling All Employers-- Be In Compliance!

If you have any questions about your company’s handbook or compliance with the referenced laws and policies, please contact the attorneys at Palmer Kazanjian Wohl Hodson LLP. Also, please check out our Legal Compliance Program Page and be sure to follow us on Facebook and LinkedIn!