Don't Play Loose with Independent Contractors

California does not make life easy for business owners.  In October 2011 our state leaders enacted SB 459 which creates Labor Code section 226.8 and becomes effective on January 1, 2012.  This law imposes a fine between $5,000 and $15,000 on any person or employer who:  (1) Wilfully misclassifying a worker as an independent contractor; or (2) charging a fee for making a deduction from the worker's compensation for any purpose if doing so would have been prohibited if the worker had been properly classified as an employee.  The penalties increase to $10,000 to $25,000 if the person or employer is found to have engaged in a pattern or practice of the prohibited behavior.  

SB 459 also creates Labor Code section 2753 which imposes liability on any other person who, for consideration, knowingly advises an employer to treat a worker as an independent contractor.  Thankfully attorneys are exempted from this provision! 

The penalties are even more draconian if the person or employer is a contractor.  If the Labor and Workforce Development Agency or a court determines that a contractor violates the law, a copy of the order is transmitted to the Contractors' State License Board.  The Board is required to take disciplinary action against a contractor if the LWDA or court order resulted in disbarment. 

Of course, this is not good enough for the do-gooders of Sacramento.  The new law also requires the LWDA or court to post on its website (or at the location of the violation if the company does not have a website) a notice indicating that it has committed a serious violation of the law by engaging in the willful misclassification of an employee, that the company has changed its business practices, and that if anyone else believes (s)he is also misclassified as an independent contractor, to contact the LWDA. 

SB 459 also allows the Labor Commissioner to impose the monetary penalties.  In fact, this will probably be a common method by which the issue is raised -- a disgruntled worker will file a complaint with the Labor Commissioner.  A hearing will take place and the hearing office will render a decision on whether the person or employer violated section 226.8 by willfully misclassifying a worker. 

So what is "willful misclassification"?  The bill says it is "knowingly misclassifying an individual."  Wow.  Now that's helpful.  I anticipate that the Labor Commissioner or a court will ask the typical questions relating to the right to control the means or methods of operations.  Perhaps courts will ask the IRS 20 Questions test to help make the determination. 

What is clear, however, is that employers take substantial risks when classifying workers as independent contractors.  The "historical" risks continue to apply:  Liability for unpaid PIT or payroll taxes, workers' compensation complications, liability to a third party, etc.  Now businesses must assess the business risk of getting hit with the new penalties associated with SB 459. 

How Often Can An Employer Harass Before It Becomes Unlawful?

An interesting question isn't it?  One court recently said that three times was not too much harassment in a 4-year period.  Brennan v. Townsend & O'Leary Enterprises, Inc.,

Harassment is not unlawful unless it is based on a protected class, is unwelcome and is either pervasive or severe.  Pervasive means "a concerted pattern of harassment of a repeated, routine, or a generalized nature."  The three incidents involved the boss requiring a woman to were a veil with a plastic penis attached received at a bachelorette party, the boss dressed as Santa asking woman to sit on his lap at a Christmas party and asking personal questions, and the boss wearing a Santa hat at another Christmas party with the word "bitch" written on it.  (I bet those parties were interesting!) 

The court said that Ms. Brennan was out of luck.  It was not sufficiently pervasive.  The Christmas party incidents did not even occur at the workplace.  Nor was there anything "severe" coupled with the acts. 

It is interesting to read the case.  Ms. Brennan was close to Mr. O'Leary, the boss.  She considered him a friend with whom she did share some personal information. 

But when a job is lost or other issues arise, it is not uncommon for an employee to identify past acts as unwelcome and hostile.  This is why it is so important for business owners and managers to keep a professional relationship with staff.  Just like we hear on all the cop shows, "Whatever you say or do will be used against you in a court of law." 

But then, if you are feeling lucky ... you may have three free shots.  And if you take the chance I am here ready to defend you ... and take your money in doing so.  (So don't take the chance.)   

Did You Ever Want To Sue Your Employee Or Ex-Employee?

That is exactly what Nicholas Labs did.  It sued its former employee, Christopher Chen, for competing with the company when he was in the company's employ.  The company concluded that Mr. Chen diverted business opportunities away from Nicholas Labs to his own business. 

As any good employee would, he cross-complained against Nicholas Labs, contending that under Labor Code section 2802 he was entitled to indemnity for defending himself against the lawsuit.  In other words, he wanted Nicholas Labs to pay the legal fees and other expenses he incurred defending himself against the claims by Nicholas Labs. 

Eventually, Nicholas Labs dismissed its complaint against Mr. Chen.  The court does not explain why; however, I suspect the company realized that either its claim was poor or that it wouldn't get any money out of him anyway.  Nevertheless, Mr. Chen's cross-complaint for indemnity went forward. 

Section 2802 of the Labor Code requires an employer to indemnify its employee for "all necessary expenditures or losses incurred by the employee in the direct consequence of the discharge of his or her duties."  The court concluded that the term "indemnify" refers to situations where a third-party sues the employee, and not to situations where the employer sues the employee. 

In the end, good news for employers.  Employees cannot ask you to pay for the legal fees they incur defending lawsuits prosecuted by the employer.  But employers should still exercise caution.  Economically, lawsuits against employees rarely payoff for the employer.  Employees are generally without funds to recover.  Filing a lawsuit can be an expensive, and unsatisfactory, exercise for the company. 

Oral Arguments Scheduled in Brinker

The Supreme Court has announced that on November 8, 2011, three years after taking the case, oral arguments will be held.  What the court does in this case will have substantial impact. 

The parties to the case can't even come to terms on the nature of the issues to be addressed by the court.  Of course, we are all very interested to learn whether an employer must ensure that an employee take his/her meal period or whether an employer complies with the law simply by making the meal period available to the employee. 

However, there is another, very compelling question the court will address.  The court has asked the parties to address whether courts can accept survey and statistical evidence as a method for proving meal period, rest period or "off-the-clock" claims on a classwide basis.  This issue can have a substantial impact on all employers. 

The plaintiffs argue that survey and statistical evidence can and should be used even if the court adopts the "make available" standard for the taking of meal and rest periods.  Plaintiffs say that Brinker's uniform policy and centralized timekeeping system, combined with "representative" testimony of 26 employees is a sufficient basis for prosecuting a class action lawsuit with 59,000 employees. 

Of course, the defendant claims that it does not have a uniform policy of preventing employees from taking meal periods.  Moreover, the decision as to the use of a rest period depended on each particular employee and particular manager.  Thus, the case focuses on the particular facts and circumstances of each employee. 

I suspect that the court will adopt some class action standards that will govern other employment cases, regardless of the outcome of the first issue -- whether the employer must ensure compliance with meal and rest periods or simply make them available. 

I also suspect that if the ruling is not somehow favorable to employees that our Democrat-controlled Legislature will send a bill to our Democrat Governor to make sure that an employer compel the use of rest and meal periods.  And that would be an unwise move on the part of our government. 

Employment laws in California are too complicated.  There are too many rules and too many technicalities.  It is too easy for a good employer (which I believe most are) to unwittingly violate wage laws.  And they often do it in an effort to benefit an employee. 

For example, consider the employee who prefers to leave work early as opposed to take a lunch.  I have had clients permit their workers this favor.  Unfortunately, when an employee loses a job he/she often looks for revenge or some way to get back at the employer.  I have seen many cases where an employee filed a complaint because the employer did not technically comply with the meal mandate.  That resulted in payment of the 1-hour premium pay as well as the 30-day waiting period penalty. 

It's time for government in California to wake up.  There are sufficient laws to protect employees.  Make it easier for employers and employees to structure their workdays, enjoy life, and avoid lawsuits. 

Changes to Credit Checks in California

Over the past few years there has been substantial debate about the use of credit reports for employment purposes.  Many foes of the practice have contended that with the bad economy, skyrocketing medical bills and other economic woes, many people have bad credit yet can be good employees.  They argue that disqualifying applicants with bad credit will keep many people unemployed. 

Over the weekend Governor Brown signed Assembly Bill 22 which impacts an employer’s right to conduct credit report checks.  AB 22 limits the positions for which a consumer credit report can be performed and requires additional notices before and after a check is conducted. The law becomes effective January 1, 2012. 

Sierra HR Partners has updated its forms to reflect the new law and will provide them to clients for use in 2012.

What has changed?

·        A consumer credit report may be conducted for persons applying for the following positions only:

·         A managerial position;

·         A position in the state Department of Justice, a sworn peace officer or other law enforcement position;

·         A position for which the law requires that a consumer credit report to be obtained;

·         A position that involves regular access to the bank or credit card account information, social security number, and date of birth for any person (except for routine credit card solicitations or applications);

·         A position that requires the person to be named signatory on company bank or credit card accounts;

·         A position that authorizes the person to transfer money on behalf of the employer;

·         A position for which the person is authorized to enter into financial contracts on behalf of the employer;

·         A position that involves access to confidential, proprietary or trade secret information; and

·         A position that involves regular access to cash totaling $10,000 or more during a workday.

.

·         Before conducting a consumer credit check, the employer must provide written notice to the applicant indentifing the specific basis for conducting the check (Pre-report notice).  The notice must include a box that the applicant can mark on the order to obtain a copy of the report. 

·         If employment is denied based partially or completely on the consumer credit report, the employer must so advise the applicant and provide the name and address of the reporting agency (Post-decision notice). 

Note:  A consumer credit report is defined as any written, oral, or other communication of any information by a consumer credit reporting agency bearing on a consumer's credit worthiness, credit standing, or credit capacity. These reports do not include verifying income or employment, and credit related information, such as credit history, credit score or credit record. 

What should I do now?

If you use Sierra HR Partners for your background checks, you are in a good position.  Sierra HR Partners will provide you with the necessary pre-report notice for the credit checks conducted in 2012.  You will need to send out your own post-decision notices to applicants if information in the consumer credit report affected your decision.  The notice can be simple.  Include in your letter to the applicant, "The company has made its decision, based in whole or in part, on the consumer credit report conducted.  Sierra HR Partners, Inc. provided the consumer credit report for the company." 

I advise all employers to conduct background checks for its applicants.  A background check is a valuable source of information in the hiring process.  Sierra HR Partners offers comprehensive background investigation services at competitive rates.  Please feel free to contact them at 559-431-8090.

The NLRB Issues a Report on Social Media Policies

Several hours ago, the National Labor Relations Board ("NLRB") posted a report describing the cases it has investigated regarding an employer's social media policies.  The report is very instructive and gives valuable guidance as to the NLRB position on the type of social media policies adopted by employers, and also on an employer's right to discipline an employee for his/her use of social media. 

Concerted Activities

In order to draft policies correctly, and to adopt appropriate HR practices, an employer must understand what is protected.  In most settings, employees do not have unfettered "free speech" rights.  However, the National Labor Relations Act ("NLRA") does provide employees with certain free speech (and activity) rights.  Per section 7 of the NLRA, an employee has the right "to engage in concerted activities for the purpose of collective bargaining or other mutual aid or protection."  Case law has explained this provision as an employees right to act with or on authority of other employees.  This means that employees can discuss among themselves the terms and conditions of employment without fear of employer interference. 

The NLRB has concluded that the following social media postings constituted concerted activities: 

• A commissioned salesperson expressing the concerns of other salesperson by complaining about the car dealership's promotion where it served hot dogs, water, fruit and snacks, would result in few sales and therefore few commissions. 
• Restaurant workers complaining about the employer's inability to correctly withhold personal income taxes, resulting in several employees owing taxes at the end of the year. 
• Protesting an employer's refusal to provide a union representative in a possible disciplinary setting on Facebook. 

The NLRB has concluded that the following social media postings did not constitute concerted activities: 

• A newspaper reported tweeting disparaging comments about another television station, and about the city's homicide rate.  The reporter was not discussing workplace conditions; nor did she seek to involve other employees in her comments. 
• A bartender who complained that he did not receive tips under the employer's tipping policy was discussing working conditions.  However, he posted these comments in a discussion with his relative.  There was no evidence that the bartender intended to involve co-workers in this discussion. 
• A dispatcher at an ambulance company posted a comment on her Senator's web page criticizing her employer.  However, she did this on her own, and did not involve co-workers. 
• A night-shift worker at a mental health hospital did not engage in concerted activities when she criticized the behavior of a patient at the hospital in the Facebook post she drafted while at work.  There was no evidence the employee was inducing any type of group action. 
• A retail worker did not engage in concerted activity when she posted personal gripes on her Facebook page.  She did not attempt to initiate or induce group action, although several co-workers commented on her post. 

In examining these cases, it is clear that before an employer takes disciplinary action against an employee, the employer should make two determinations.  First, the employer must understand the nature of the employee's social media posts.  Was the employee discussing the terms and conditions of employment, such as wages, hours, staffing, etc.  If the answer is yes, the employer should determine whether the employee attempted to involve co-workers, or induce group action, or whether the employee was speaking with the authority of others.  If the answer to this question is also yes, then the employee was engaging in protected activity. 

Potential Exceptions to the Protections of Concerted Activity if Language is Vulgar or Disparaging

An employer may encounter a situation where the employee used vulgarity, or was otherwise "insubordinate".  An employer must understand that the NLRB does not have the same point of view as most employers.  The NLRB does not frown on mere "swearing or sarcasm."  Rather, the behavior must be sufficiently opprobrious, meaning contemptuous reproach, scorn or abuse.  So for example, in the case involving restaurant workers complaining about management, the term "asshole" was not so opprobrious as to justify termination.  However, the terms "son of a bitch" or "mother fucking liar" are sufficiently opprobrious as to justify termination. 

In determining the severity of the vulgar comments, the NRLB uses a four-part test -- referred to as the Atlantic Steel test.  The NLRB looks at:  (1) The place of the discussion; (2) the subject matter of the discussion; (3) the nature of the outburst; and (4) whether the employee was provoked by an employer's unfair labor practice.  However, it appears that the fourth factor, which will often favor the employer, is not always relevant, particularly if the vulgar comments are, in the view of the NLRB, less offensive than other vulgarities. 

Another factor an employer might face when confronting concerted activities is a public comment that disparages the company, its products or management team.  Apparently, such a comment is not grounds for termination.  The NLRB uses the Jefferson Standard test.  Under the test, if an employer disciplines an employee for a comment made to the public that disparages the company or a product, without reference to a labor dispute, the employer's actions may be appropriate.  The inquiry focuses on whether the comments are so disloyal, reckless or maliciously untrue, that they lose any protection as concerted activity.  Moreover, whether or not the employee makes reference to a labor dispute may be irrelevant provided that the comment was not too disparaging or disloyal. 

The lesson learned is that even if an employee uses disparaging, malicious or vulgar comments, the employer must use caution.  Consider whether others would consider the comments sufficiently vulgar or disparaging as to warrant discipline.  Unfortunately, in today's society much of what is said, and even celebrated, is crass and vulgar.  Sensitivities are diminished.  Therefore, if you, an an employer, encounter concerted activity which is vulgar or disparaging, react slowly.  Don't think that just because the language used is unseemly that you will be justified in disciplining an employee.  The employee's language must be somewhat egregious to justify discipline. 

Provisions of a Social Media Policy 

In the cases it has examined, the NLRB has generally concluded that the provisions of the company's social media policy are overbroad.  This should not suggest that an employer should not have a social media policy.  Every business should have such a policy.  However, it's provisions should be clear, precise and limited to avoid interfering with an employee's NRLA rights to engage in concerted activity. 

The NLRB has found the following provisions to be overbroad: 

• Prohibiting pictures of oneself as an employee;
• Prohibiting disparaging comments;
• Prohibiting offensive, rude or discourteous comments;
• Prohibiting comments that disregard the company's or an individual's privacy rights;
• Prohbiting comments that are embarassing, harassing or defamatory;
• Prohibiting the disclosure of information on co-workers of the company;
• Prohibiting photos of the employer's building, logo or brand; and
• Prohibiting comments that damage the company's reputation or goodwill.  

The only policy provision that the NLRB has accepted is a policy preventing an employee from forcing other employees to communicate with them on social media. 

Why does the NLRB object to the provisions I cited?  Apparently, they are so overbroad that an employee could be prevented from exercising his/her section 7 NRLA rights to concerted activities.  For example, the provision prohibiting embarassing or harassing comments could prevent an employee from complaining about workplace conditions. 

So what can an employer have in it's social media policy?  I suggest that an employer can use some of the provisions the NLRB decries as overbroad.  However, the use of such provisions should be coupled with examples of prohibited conduct.  The more examples the employer gives, the more likely the policy won't be deemed overbroad. 

An employer should also consider describing the policies behind the prohibition.  For example, in the case involving the mental hospital, the employer described its policy of protecting its patients from the stigma of mental illness. 

Employers should also include a provision stating that nothing in the social media policy is intended to prevent an employee from engaging in activities protected by the NLRA including discussions regarding the terms and conditions of employment. 

Summary

I welcome the NLRB's report on social media.  It will assist employers in drafting social media policies and also in disciplining employees for their use of social media.  However, it is important for an employer to understand the concept of "concerted activities" and when the use of vulgar or disparaging comments may take an employee outside the protection of the NLRA. 

Employers must also carefully draft their social media policies with specific examples of prohibited conduct, an explanation for the employer's rule, and an exception for any section 7 rights.  Doing these things will provide the company the most protection possible against lawsuits based on section 7 of the NLRA. 

If you need further addressing these issues, please contact me. 

Meal and Rest Periods -- We're Still Waiting on the Supreme Court

In California employers must comply with many rules not found in other states, including rules related to meal and rest periods.  Several years ago the law was modified so that employers who did not provide a meal or rest period to employees were penalized.  The penalty, known euphemistically as a "premium" is calculated at one hour of the employee's wage.  In addition, the courts concluded that failing to pay the premium by the time the worker's employment terminated gave rise to wating period penalties -- calculated at the employee's daily rate of pay -- for up to 30 days.  Failure to pay the "premium" also gave rise to a claim for attorneys' fees. 

In 2008 in Brinker v. Superior Court (Hohnbaum), a Court of Appeal concluded that the employer's responsibility was not to ensure meal and rest periods were taken, but simply to provide them.  If an employee chose not to take a meal or rest period, the employee could not later sue his/her employer for failing to provide the meal or rest period.  Of course, the court said that if the employer interfered with the employee's right to take a meal or rest period then the employer would be subject to the "premium." 
In October of 2008, the California Supreme Court granted review of the Court of Appeal decision.  This means that the appellate decision in Brinker is not controlling law, nor can it be cited as legal authority.  Of course, this has complicated the situation in California.  For example, the Division of Labor Standards Enforcement ("DLSE") has taken the position that although Brinker has been decertified, it will still enforce the law in accordance with Brinker -- but do it according to other legal authorities.  Many employers are still wary, however, because they fear the Supreme Court will reverse the decision of the Court of Appeal and impose the penalties for situations where employees, of their own choosing, did not take a meal or rest period. 

On May 10, 2011, another Court of Appeal ruled in the Lamps Plus Overtime Cases that employers must allow workers to take rest periods, but employers are not required to ensure that workers take them.  In other words, Lamps Plus agrees with the Court of Appeal in the Brinker case. 

The impact of these rulings is also substantial in another area -- attorneys' fees.  Attorneys love to file class action wage and hour cases.  If rest and meal periods are mandatory, it doesn't matter why the worker didn't take the rest or meal period.  The employer is liable under any circumstance.  This gives rise to a class action lawsuit since the predominant question will be whether workers missed meal or rest periods.  However, if a worker must prove why (s)he did not take a rest or meal period, the predominant question is why the employee missed it.  Every case is different.  It will depend on the particular circumstances of the case.  As a result, this type of case is not appropriate for class action status.  The poor lawyer doesn't get enough money.  Yes, I am sad too. 

Let's hope the Supreme Court issues an opinion soon in the Brinker case and puts this issue to rest.  Let's also hope the Court affirms the ruling of the Court of Appeal, which is well-reasoned.  If the employer interferes with the employee's right, it should pay the consequence.  However, if the employee chooses to skip a meal period, the employer should not be held to pay. 

A Pregnant Employee's "Secret" Emails Sinks Her Case

Consider the case of Gina Holmes, who sued her employer, Petrovich Development Company, asserting causes of action for sexual harassment, retaliation, wrongful termination, violation of privacy and intentional infliction of emotional distress.  (Holmes v. Petrovich Dev. Co., LLC 2011 DAR 671.)  Gina interviewed and was hired in June 2004.  In July 2004 she announced her pregnancy, her December 7th due date, and her intention to work until the due date, and take only six weeks of leave. 

The following month, the boss sent her an email discussing the need for qualified person to assist during her leave of absence.  Sh responded by stating she would be leaving about November 15th and possibly be gone four months, the maximum allowed in California. 

Understandably, the boss was confused and upset.  He asked Gina when she decided to leave earlier and be gone so much longer.  He felt that Gina was not honest with him.  Gina responded by explaining the difficulties she has had with pregnancies, and that she did not want to announce her pregnancy before she confirmed all was well -- also understandable. 

They appeared to settle the issue, with Gina expressing how much she enjoyed her job and wanted to stay, and the boss telling her he wanted her to stay.  However, later that day Gina sent an email to her lawyer complaining that she felt like an outcast and that the boss had forwarded her emails to others (with HR responsibilities) in the company.  She also set up a meeting with her lawyer.  After that meeting, Gina wrote another email to her boss telling him that she could not put the matter behind her and that she had no choice but to resign.  A few weeks later the lawyer filed a lawsuit on Gina's behalf. 

Gina lost the lawsuit and she appealed.  She claimed that the emails between she and her lawyer, made with the company computer, were protected by the attorney-client privilege and could not be used in the case.  The court disagreed with this claim.  The handbook notified employees that they do not have any right of privacy in the use of company computers, and that emails or other messages could be accessed by the company.  Gina waived any attorney-client privilege by communicating with her lawyer knowing that the communications could be reviewed by the company.  Such behavior is similar to consulting a lawyer in the employer's conference room, with the door wide open and speaking with a loud voice.  Gina's failure to communicate in confidence negated the attorney-client privilege. 

This is an important case for employers for a couple of reasons.  First, this case shows employers the importance of establishing policies and informing employees that their use of electronics, such as computers, can be monitored.  A password does not guarantee privacy.  The company can review anything an employee does on his/her computer. 

Another important lesson is for employers to watch what they say and do when an employee announces a pregnancy.  I have had the situation arise with multiple clients where an applicant is hired to fill a position just to announce, within weeks or even days, that she is pregnant and will need time off.  The law allows for this, whether or not it may be considered fair for an employer.  Address the issue of time off in an appropriate way.  If a substitute will be needed to fill in, try and determine when the leave might commence so you can take appropriate action to find and train the substitute. 

Will it be inconvenient to do this?  Yes.  Will it be more expensive?  Probably.  However, the bother and the cost is insignificant compared to a lawsuit.  Even if the employer wins, the employer spends a lot of time, money and energy to defend a lawsuit. 

Nevertheless, this is a great victory for employers.  A court has concluded that under the circumstances of this case, the employer's review and use of emails between the employee and her attorney were not privileged.  And the use of those emails greatly helped the employer prevail in this case. 

Waiting Period Penalties Can Come Back To Haunt An Employer

In California, failing to pay an employee all of his/her wages at the time of termination (or within three days in certain circumstances) results in waiting period penalties pursuant to Labor Code section 203.  This penalty, calculated at the employee's daily wage, grows each day the employee is not paid all wages, up to a maximum of 30 days. 

It is not uncommon to find an employer who fails to pay all wages at the time of termination.  For example, an employee might say, "I am leaving Tuesday but I will come back in on Friday to pick up my check."  Or an employer may fail to pay all accrued, but unused vacation.  Another common example is if the employer misclassified an employee as exempt and did not pay him/her overtime compensation.  In each of these examples, liability for waiting period penalties arises.  

Labor Code section 203(a) states that "the wages of the employee shall continue as a penalty from the due date thereof at the same rate until paid ...."  The Code of Civil Procedure, section 340(a) provides a one year statute for the recover of penalties. 

Labor Code section 203(b) states that an employee may sue for "penalties at any time before the expiration of the statute of limitations on an action for the wages from which the penalties arise."  Code of Civil Procedure section 338(a) contains a separate three-year statute of limitations for "an action upon a liability created by statue" such as unpaid wages.  

This is where it gets interesting.  Mr. Pineda was not paid until four days after termination of employment.  However, he was paid all wages due.  Those final wages were just late, by four days.  Therefore, Bank of America owed him four days of waiting period penalties.  Assuming Mr. Pineda earned $20 per hour and worked eight hours per day, the penalties totalled $640.  ($20 x 8 hrs) x 4 days = $640. 

Mr. Pineda could have gone to the Labor Commissioner and asked for his $640.  But he didn't.  He went to a lawyer who no doubt suggested filing a class action lawsuit.  Filing a class action lawsuit would not result in more money for Mr. Pineda; however, the lawyer was likely to get a lot more money.  Mr. Pineda's lawyer filed the lawsuit 18 months after the termination of Mr. Pineda's lawsuit. 

Here's the legal issue:  Does Mr. Pineda have three years in which to file a lawsuit, pursuant to Labor Code section 203(b), or because he is seeking a penalty only, must the lawsuit be filed within one year under 203(a)?  Unfortunately, the Supreme Court ruled that the three-year statute applies to all claims for waiting period penalties, whether or not the employee is also seeking unpaid wages.  (Yes, you noticed -- a $640 case made it all the way to the California Supreme Court.) 

What does this mean to employers?  It means that an employee can come back after you three years later for unpaid waiting period penalties.  It may also mean that the employer could face a class-action challenge.  Whether or not ultimately successful, the assertion of a class action lawsuit substantially increases the costs of litigation. 

Employers must scrutinize their pay practices.  Have you properly classified employees?  Do you pay overtime correctly?  Do you make rest and meal periods available?  Do you make seating available to employees who could reasonably sit and perform their duties?  Do your paycheck stubs include all of the required information?  Any small error in any of these areas could result in a claim against you.  Could you pay $640?  Of course.  But could you pay that cost multiplied by the number of employees in a similar situation?  And could you pay the attorneys' fees associated with the lawsuit?  That's a more difficult question.