Employee Discipline/Termination, Paid Vacation Accrual, General Contractors – Wage and Hour Liability
The Goldstein Law Firm
July 2009 Newsletter
“Employee Discipline/Termination, Paid Vacation Accrual, General Contractors – Wage and Hour Liability, and The Goldstein Law Firm’s Fall 2009 Labor and Employment Seminar”
By: Charles H. Goldstein, Esq.
The Goldstein Law Firm
Entering the second of half of this economically challenging year, employers must continue to focus on the employment basics of their business in addition to overhauling and scaling back overhead and other costs/expenses. Our July 2009 newsletter continues this theme and contains three discussions relating to this topic. We first briefly address an approach that I have developed over the course of my career that offers employers the best chance of having their discipline or termination decisions upheld by a court or arbitrator. We next turn to the topic of employment benefits and specifically discuss a case that was recently decided by the California Courts of Appeal which deals with paid vacation accrual, since many employers mistakenly believe that paid vacation accrual is legally mandated to commence on the first day of employment. Following this discussion, we then turn our attention to another employment case that was recently decided by the Courts of Appeal involving general contractors wage and hour liability, since this issue can and will arise in situations where our clients have contracted with a general contractor for construction services related to improving their buildings, physical plant, or when making tenant improvements to their leasehold.
1. Employee Discipline/Termination
In a tough economy, employers want the flexibility to discipline or terminate an employee. Over the course of almost half a century, I have developed a 7 step approach for determining whether an employer’s discipline or termination of an employee could have the greatest chance of withstanding legal scrutiny. Although each employee discipline or termination situation has a different factual base, employers who can objectively answer the following 7 questions in the affirmative, will be in the best possible position to have their decision to discipline or terminate an employee sustained.
A. Was the employee given advance notice of the potential disciplinary or terminable consequences of the conduct?
B. Did the Company Policy or Managerial Order reasonably relate to:
i. The orderly, efficient, and/or safe operation of the Company?
ii. The performance that an organization might properly expect of its employees?
C. Did the Company, before administering discipline or termination, make an effort to discover whether or not the employee did in fact violate or disobey a rule or order of management?
D. Was the Company investigation conducted fairly and objectively?
E. At the investigation, did the Company obtain substantial evidence or proof that the employee was guilty as charged?
F. Has the Company applied its rules, orders, and penalties equally and fairly to all employees without discrimination?
G. Was the degree of discipline administered by the Company, in the particular case, reasonably related to:
i. The seriousness of the proven offence?
ii. The record of the employee and his/her length of service?
2. Paid Vacation Accrual: An Employer can decide that vacation accrual is not automatic for new employees and that employees have to work for a period of time before being eligible for paid vacation:
California employers recently won a major victory when the California Court of Appeal, Second Appellate District held in Owen v. Macy’s, Inc. 2009 DJDAR 9695 (Cal. App. 2nd Dist.) that California law permits an employer not to offer new employees paid vacation time provided an express written company policy contained in an Employee Handbook forewarns new employees that their compensation package does not include paid vacation during their initial employment, and therefore no vacation pay is earned and none is vested.
In Owen, Lisa Owen began working as a sales associate at a Robinson’s – May Department store in 1990. In January 2006, employees at the Robinsons where Owen worked were notified that the store would be permanently closed – and their jobs eliminated – by April 2006. The Arcadia Robinsons where Owen worked closed on March 18, 2006. Owens’s employment at Robinsons ended on April 14, 2006 with a separation agreement showing that she was not credited with any unused vacation pay, but received $12,469.00 in severance and other pay, based on her years of service.
In July 2006, Owen filed suit against the subsequent purchaser of Robinsons-May Department stores, which is Macy’s, Inc. In her Complaint against Macy’s, Owens alleged the following causes of action: (1) failure to pay her accrued, vested vacation compensation, in violation of the California Labor Code; (2) engaging in conduct that was an unlawful business practice, in violation of the California Business and Professions Code; and (3) engaging in conduct that was a breach of the implied covenant of good faith and fair dealing. Owen’s lawsuit against Macy’s was styled as a class action on behalf of all similarly situated employees. The trial court granted Macy’s motion for summary judgment.
Owen filed an appeal solely on the issue of whether Robinsons-May’s Handbook policy that a new employee earns zero vacation time during the first six months of employment, was lawful. Owen argued that an employee should be credited with vacation time starting from the very first day of employment, and that as a result Robinsons-May’s Handbook policy was illegal. The Court first focused on the language of California Labor Code Section 227.3 which states: “Unless otherwise provided by a collective bargaining agreement, whenever a contract of employment or employer policy provides for paid vacations, and an employee is terminated without having taken off his vested vacation time, all vested vacation shall be paid to him as wages at his final rate in accordance with such contract of employment or employer policy respecting eligibility or time served; provided however , that an employment contract or employer policy shall not provide for forfeiture of vested vacation time upon termination.”
The Owen Court found that the plain language of the statute does not require employers to provide their employees with any paid vacation at all, contractually or as a matter of policy. The Court then examined Robinsons-May Handbook policy which specified that the employee compensation package does not include vacation time starting from the first day of employment. After examining the company’s handbook, the Court concluded that any prospective employee reading this handbook would understand that he or she would not earn vacation pay as part of the compensation package for the first six months.
This case illustrates the fact that employers must have Employee Handbooks which comply with federal and state law while at the same time reflect practical economic concerns such as paring back employment benefits costs for new employees by not allowing paid vacation benefits to accrue, and therefore vest, at the beginning of employment.
3. General Contractors – Wage and Hour Liability:
Sanders Construction Company, Inc. v. Martin Cerda et al. 2009 DJDAR 9714 (Cal. App. 4th Dist.) is a case that was recently decided by the Courts of Appeal and deals with the wage and hour obligations of general contractors for the wages of employees who are employed by unlicensed subcontractors.
Sanders Construction Company, Inc. was the general contractor on the construction of a Hesperia hotel. In June 2006, Sanders Construction hired Humberto Figueroa Drywall Company to install drywall for a contract price which included labor and materials. Between June and September 2006, Sanders Construction paid Figueroa Drywall Company, whose responsibility it was to pay the company’s workers. Beginning in September 2006, issues arose between Sanders Construction and Figueroa Drywall Company regarding the quality of the work and the compensation for the work. Sanders Construction learned that Figueroa Drywall Company’s license had expired before June 2006, and continued to work with Figueroa Drywall Company to complete the project. Figueroa Drywall Company stopped work on the project in January 2007.
Figueroa Drywall Company’s employees had not been paid during the project and when the project ended filed a wage claim with the California Labor Commissioner against the general contractor, Sanders Construction for wages, interest, and waiting-time penalties. After weighing the evidence, the California Labor Commissioner concluded that Sanders Construction was the statutory employer of the workers employed by Figueroa Drywall Company, entitling them to wages and interest, declining to award waiting time penalties because there was a good-faith dispute about whether Sanders Construction was the employer.
Sanders Construction filed appeals in the Superior Court challenging the six (6) awards by the Labor Commissioner for wages and interest. The Superior Court affirmed the Labor Commissioner’s award of wages and interest, but restored the waiting time penalty award. Sanders Construction appealed to the appellate division of the Superior Court, which also affirmed the award of wages and interest to the six (6) employees of Figueroa Drywall Company, but eliminated the award of waiting-time penalties.
Sanders Construction appealed this decision to the California Courts of Appeal Fourth District for resolution of the following question: whether a general contractor may be held liable for the unpaid wages of workers hired by an unlicensed subcontractor. The Court reviewed California Labor Code Section 2750.5 and precedent interpreting that statute and concluded that a general contractor is the employer of not only its unlicensed subcontractors but also those employed by the unlicensed subcontractor and therefore liable for the unpaid wages of those employees. The Court found that this interpretation was consistent with prior judicial interpretations of Labor Code Section 2750.5 which have held that when a subcontractor is unlicensed, workers compensation liability together with EDD unpaid contribution and withholding liability for the subcontractor’s employees, will be imposed on the general contractor as a matter of law.
This means that if you doing constructing or making tenant improvements, you have to make certain that any subcontractor hired by your general contractor is paying its employees and has workers compensation coverage so that you are not surprised when although the construction project came in within budget, the subcontractors employees have not been paid and your company is named in a wage and hour lawsuit by unpaid subcontractor employees which would more than erase any savings you or your general contractor achieved by knowingly hiring an unlicensed subcontractor or “looking the other way” when you learn that the subcontractor is not licensed.
4. The Goldstein Law Firm’s Fall 2009 Labor & Employment Seminar:
As many of you know, for the past thirty years, we have held a labor and employment seminar during the year which addresses topics such as: hiring/firing, discipline, leave of absence laws, sexual and non-sexual harassment, wage and hour issues, layoff issues, arbitration agreements, and recent developments in the law. Seminar attendees can attend at no cost, are provided with seminar booklets, breakfast, and an unlimited question and answer session with me. We will be sending out invitations in the next month and hope to see each of you at our Fall 2009 Seminar.
The Goldstein Law Firm
8912 Burton Way
Beverly Hills, California 90211
Telephone: (310) 553-4746
Facsimile: (310) 282-8070