Top 8 Things a Small Business Should Do To Protect Itself From Employee Liability

Posted: May 30, 2017 | News

Employee lawsuits are extremely active in California, and small businesses are not immune.  Understanding and complying with employment laws is more important than ever.  Following is a list of things a small business should be doing to reduce the chance of employee liability:

1.    Understand the difference between exempt and non-exempt, and pay employees accordingly.  Employees are not exempt from state or federal overtime laws, unless one or more exemptions apply.  Become familiar with the Wage Order that applies to your business and review the job duties of each position in your business to determine whether an overtime exemption applies.  If an exemption doesn't apply, the employee must be treated as a non-exempt employee entitled to overtime pay.

2.    Provide legally-compliant meal and rest breaks to non-exempt employees and implement good timekeeping practices. Employers must provide non-exempt employees who work more than five hours in a workday with a minimum 30-minute unpaid, uninterrupted meal break, starting no later than the end of the fifth hour of work. Each day that an employer fails to provide an employee with a meal or rest break, the employee is due a premium equal to one additional hour of pay at the employee's regular rate. Failing to provide compliant meal and rest periods expose a business to a potential class action and Private Attorneys General Act (PAGA) lawsuit. Keep good records of the employee's time worked, including the time the employee began and ended her meal period.  Overtime pay should be accurate, the employee's itemized wage statement must be accurate, and final wages must be paid at the time of termination.

3.    Know when to classify individuals as employees and not independent contractors. If the business controls how work is performed, the location where work is performed and supplies the tools to perform the work, this is a good indication the worker will not be viewed as an independent contractor. True independent contractors generally have an established business, perform work unrelated to the business, make their services available to other companies, and control the means and methods of work. Potential liabilities for misclassification include liability for unpaid payroll taxes, unemployment benefits, disability insurance, workers' compensation claims, and wage and hour claims. Significant civil penalties may be imposed by state and federal agencies.

4.    Review pay practices, particularly when hiring new employees. The California Fair Pay Act applies to all employers no matter the size, and includes protections against wage discrimination based on sex, race or ethnicity for substantially similar work. Set salaries based on requirements, expectations and qualifications of the employee and not solely based on the person's prior earnings.

5.    Check with state, local city and county governments for ordinances, including minimum wage and sick pay laws that may impact your business.  If you have employees working in Northern California, and some Southern California cities including Los Angeles, Long Beach, Malibu, Pasadena and Santa Monica, you may need to revise your policies.  Post and provide employee required federal, state, and local employment notices. Posters must be conspicuously displayed, easily seen and read by employees and applicants. If 10 percent or more of a company's workforce speaks a language other than English, posters must be displayed in that language. Many of these posters and pamphlets are available in multiple languages on state and federal agency websites.

6.    Consider implementing arbitration agreements with class action waivers if you employ non-exempt employees.  Having an enforceable arbitration agreement in place can mean the difference between an individual arbitration and a class action lawsuit.  Although, the company is responsible for paying the arbitrator's fees, if it is determined that the employee waived her right to participate in a class action, it is a significantly less risk and ultimate cost to the employer.  Generally, the arbitration process is confidential and may reduce the possibility of negative publicity that may occur with litigation. 

7.    Understand paid sick leave and other leave obligations. California law requires all employers to provide paid sick leave in an amount that is the greater of three days or 24 hours each year, including to part-time and temporary employees. Employers may elect to use an accrual method of at least one hour of paid sick leave for every 30 hours worked.  Check local jurisdictions where your employees perform work, as paid sick leave laws in some local cities provide even greater employee benefits. Other California leave obligations for small businesses include pregnancy disability leave, leave under the Fair Employment and Housing Act and/or Americans with Disabilities Act, time off for jury duty, voting time leave, military service leave, school appearance leave, and others.

8.    Don't ignore employee issues.  Employee problems may seem to start small, but can escalate very quickly.  When an employer learns of an employee complaint, address the issue head-on to diffuse the situation and investigate where necessary.  Ignoring the problem generally doesn't make it go away, and more often than not we find that if the issue was addressed early, the issue can be contained.

Resources for small business are available on federal, state and local websites such as the United States Department of Labor (DOL), the California Division of Labor Standards Enforcement (DLSE), the Employment Development Department (EDD), the Occupational Safety and Health Administration (OSHA), and the Small Business Administration (SBA).  Competent employment law counsel can also interpret and serve as an additional resource for small business employers. Take steps to protect your business from employee lawsuits and learn the law. Prevention is key.

Colleen M. McCarthy

Colleen M. McCarthy, Esq. is a Partner and chairs the Firm’s Employment Practices Group. She has dedicated her practice to representing and protecting employers, with a particular emphasis on risk mitigation through preventative counseling and sound practical advice. For 15 years, Ms. McCarthy has counseled employers about the complicated employment laws that impact their businesses to ensure that they are in compliance, and to reduce the chance of costly litigation. Ms. McCarthy may be reached by phone at (949) 608-6900 or email