Employee Amber Morgan (Morgan) filed a class action lawsuit against her former employer, United Retail Incorporated (United Retail), for violations of Labor Code section 226.

Labor Code section 226(a) provides, in pertinent part:

Every employer shall, semimonthly or at the time of each payment of wages, furnish each of his or her employees, either as a detachable part of the check, draft, or voucher paying the employee’s wages, or separately when wages are paid by personal check or cash,
an accurate itemized statement in writing showing:

(1) gross wages earned,
(2) total hours worked by the employee, except for any employee whose compensation is solely based on a salary and who is exempt from payment of overtime under subdivision (a) of Section 515 or any applicable order of the Industrial Welfare Commission,
(3) the number of piece-rate units earned and any applicable piece rate if the employee is paid on a piece-rate basis,
(4) all deductions, provided that all deductions made on written orders of the employee may be aggregated and shown as one item,
(5) net wages earned,
(6) the inclusive dates of the period for which the employee is paid,
(7) the name of the employee and his or her social security number, except that by January 1, 2008, only the last four digits of his or her social security number or an employee identification number other than a social security number may be shown on the itemized statement,
(8) the name and address of the legal entity that is the employer, and
(9) all applicable hourly rates in effect during the pay period and the corresponding number of hours worked at each hourly rate by the employee.

On behalf of a class of herself and current and former non-exempt employees, Morgan alleged that United Retail’s wage statements failed to comply with section 226, subdivision (a) because they listed the total number of regular hours and the total number of overtime hours worked by the employee, but did not list the sum of the regular and overtime hours worked in a separate line. Morgan alleged that the separate line was required by Labor Code section 226(a)(2).

The trial court disagreed and dismissed the section 226 claims. The appellate court concluded that the trial court properly dismissed the claims because United Retail’s wage statements complied with the statutory requirements of section 226 by “showing . . . total hours worked.” The Court reasoned, in part, that the plain language of the statute did not specifically require two separate lines and that the paystubs used by United Retail provided the employees with the essential information for verifying that they were being paid for all hours worked. Morgan v. United Retail Incorporated (July 2010).

While the employer prevailed in this case, the case is a reminder of the strict requirements of Labor Code section 226. Employers must be sure that each and every paystub contains all of the required information to avoid liability. If you have any questions about this case, or other wage and hour issues, please feel free to contact Susan E. Bishop

Does your company use independent contractors to sell your products in the wholesale market?  If so, your company must be aware of the Independent Wholesale Sales Representatives Contractual Relations Act of 1990. 

On June 24, 2010, for the first time, the Second District Court of Appeal of the State of California evaluated the “Independent Wholesale Sales Representatives Contractual Relations Act of 1990” (the Act).  The Act was designed to clarify the contractual requirements between manufacturers and their nonemployee sales representatives (independent contractors).  It applies primarily to independent sale representatives selling on behalf of wholesalers. 

 In Edwin Baker v. American Horticulture Supply, Inc., the Court held that the Act is designed to protect salespersons from both willful and nonwillful failures by companies to comply with the requirements set forth in the Act. 

A.        Written Contract.  The Act requires that the manufacturer and the sales representative enter into a written contract that includes the following: 

              1.  All details of the commission arrangement, including its rate and method of computation;

              2.  The time when the commission will be paid; and

              3.  The grounds for chargebacks, if any.  

B.        Signature and Acknowledgment.  Once the contract is signed, the representative must be provided with a signed copy of the written contract.  The representative must sign that he or she received the copy.

 C.        Commission Explanation.  When the business pays commission, the sales representative must be provided with details of the commission received, including the rate of commission on each order, the customer’s name and invoice number for which each payment is made, and information on any chargebacks. 

D.        Consequences.  The Act provides that any business covered by the Act who fails to pay commissions as provided in the written contract shall be liable to the sales representative in a civil action for compensatory damages or triple the damages proven at trial, depending on whether or not willfulness was found.  In addition, the prevailing party is entitled to recover reasonable attorneys’ fees and costs. 

If your business hires contractors to sell your products, this Act might apply to you.  We would encourage you to seek legal advice to ensure legal compliance, as the penalties for failing to comply may be significant.

Employers in California are generally subject to unemployment insurance taxes on wages paid to employees.  Typically employers, whether for profit or nonprofit, are assigned a tax rate and make regular contributions to cover the occasional unemployment claim made by former employees.  Most employers do not have options when it comes to making those contributions.  Some nonprofits do. 

 The California Unemployment Insurance Code provides that nonprofit organizations recognized by the Internal Revenue Service as charitable organizations in accordance with Internal Revenue Code section 501(c)(3) have two options for covering claims brought by employees for unemployment.

A 501(c)(3) may:

             (1)  Pay the same unemployment insurance taxes paid by for-profit employers (the tax-rate method); or

             (2)  Reimburse the State of California for the full cost of all Unemployment Insurance Benefits paid to their former employees (the reimbursement method). 

             To elect the reimbursement method, a qualified nonprofit must file EDD Form DE1SNP (Selection of Financing Method by a Nonprofit Organization) and EDD Form DE 1NP (Registration Form for Nonprofit Employers) with the Employment Development Department.  An election of the reimbursement method must remain in effect for not less than five (5) years and the Employment Development Department may terminate the election based on delinquent payments. 

             The reimbursement method may be beneficial if a nonprofit employer has had few unemployment insurance claims and expects few in the future.  The tax-rate method makes sense for employers anticipating heavy layoffs or if it prefers predictability with respect to expenses. 

             Nonprofit organizations are encouraged to seek legal counsel to ensure that all of the appropriate paperwork is submitted before commencing the reimbursement method.  The penalties for failing to properly elect the reimbursement method can be significant.

           Note:  State Disability Insurance contributions by employees are required under either method, as are personal income taxes. 

This seminar will provide business owners with valuable ways in which they can protect themselves and reduce wage and hour liability. From learning how to classify workers as independent contractors or employees to reviewing the main criteria for deciding whether an employee is or is not exempt from overtime laws, to covering the new meal and rest period requirements, this seminar will cover it all. Business owners should not miss this great opportunity to learn about how employment laws can impact their bottom line. Presented by employment attorney Susan E. Bishop of Pratt & Associates.

Lunch provided by Eulipia Restaurant and Bar

Location
Silicon Valley Chamber of Commerce
Chamber Office
101 West Santa Clara Street
San Jose CA 95113
September 9, 2010
11:30 to 1:30

California’s Harassment Training and Education Law — more commonly called Assembly Bill 1825 Regulations or simply AB 1825 — mandates that employers with more than 50 employees provide training in sexual-harassment prevention to supervisors every two years. Also, new hires into management and those promoted into management must be trained within 6 months of hire or promotion.

Pratt & Associates will come to your office to present the legally mandated two-hour training to supervisors and managers for as low as $70 per supervisor or manager (minimum of 10 attendees, travel outside of San Jose area is extra).

Contact attorney Susan E. Bishop about setting up a training in your office.

On March 24, 2010, the Wage and Hour Division of the U.S. Department of Labor (DOL) announced that mortgage loan officers do not qualify as bona fide administrative employees under section 13(a)(1) of the Fair Labor Standards Act (FLSA). The DOL rejected its earlier position that found loan officers to be exempt administrative employees.

The DOL concluded that mortgage loan officers are primarily responsible for making sales for their employers, not performing office or nonmanual work directly related to the management or general business operations of their employer. “Work such as collecting financial information from customers, entering it into the computer program to determine what particular loan products might be available to that customer, and explaining the terms of the available options and the pros and cons of each option, so that a sale can be made, constitutes the production work of an employer engaged in selling or brokering mortgage loan products,” the Administrator wrote. “Such duties do not relate to the internal management or general business operations of the company; they do not involve servicing the business itself by providing advice regarding internal operations, unlike the duties of employees working in, for example, a firm’s human resources department, accounting department, or research department.” Thus, these employees do not satisfy the second prong of the test for administrative exemption.

The Administrator also considered that mortgage loan officers are typically paid by commissions, are trained by their employers and are evaluated in large part on the basis of their sales volume.

If you are interested in learning how this new interpretation may impact your California business, please contact attorney Susan E. Bishop at (408) 369-0800 or sbishop@prattattorneys.com

What legal requirements apply to all businesses?

*Annual statement of information (officers, directors, and agent for service of process) and filing fee to the secretary of state (except sole proprietors and general partnerships).

*Taxes – annual franchise tax fee (except sole proprietor and general partnership), state and federal tax returns, employment taxes, sales and use taxes, personal property taxes.

*Local business license, professional licensing

*Federal Employment Identification Number

*Insurance – unemployment and workers’ compensation, liability, etc.

*Qualification to do business in other states if you do business elsewhere.

How to avoid personal liability?

1. Form an entity.
2. Avoid personal guarantees.
3. Observe appropriate formalities for the entity.
4. Remit all taxes withheld or collected.
5. Carry insurance.

Protecting Intellectual Property

1. Identify trade secrets and take steps to protect them.
   1. Trade secret defined as “(1) Derives independent economic value, actual or potential, from not being generally known to the public or to other persons who can obtain economic value from its disclosure or use; and (2) Is the subject of efforts that are reasonable under the circumstances to maintain its secrecy. 
2. Identify and protect creative works through copyrights.
3. Identify and protect distinctive phrases, logos and branding items through trademarks (or service marks). 

Buy-Sell Agreements

An agreement document how you or another owner can leave the business if one of you moves out state, goes to a new line of work, becomes physically or mentally disabled, dies, wants to sell to an outsider, or seeks to buy out a co-owner’s interest. 

What can happen if you don’t have a buy-sell agreement?

            *You may be forced to work with and share control of the company with someone you don’t know.

            *You may end up working with a family member of a deceased or divorced owner.

            *If you die, your survivors may end up stuck in a business they don’t want.

            *You may end up arguing with a co-owner on the price of the company.

Business Contracts

What makes a valid contract? An agreement, consideration and acceptance, and sometimes a writing.

Things to include in the contract:

            *Names and addresses of the parties

            *Date the contract is signed

            *Short preamble, i.e. background or recitals

            *What each party promises to do

            *When the work will be done or the product delivered

            *How long the contract will remain in effect

            *The price – or how it will be determined

            *When payment is due

            *Warranties

            *Conditions on how you can terminate the agreement

            *Liquidated damages if performance is delayed or defective

            *Whether or not a party can transfer their interest in the contract to another

            *Resolution of disputes through arbitration or mediation

            *Who will cover attorney’s fees and costs if a party breaches

            *Where notices of default and other communications can be sent

            *What state law applies if questions about the contract arise. 

Choosing an entity

Do the parties need limited liability?

Do the parties want profits and losses to pass through to their personal income tax returns?

Will all of the parties be actively involved in management?

If you are a small business owner with consistent legal needs, our Virtual In-House Counsel services are a cost-effective option for your business.  You can have the benefits of an in-house legal team, without the expense and overhead.

We will manage your legal affairs so that you can concentrate on running your business.  We provide personalized and responsive legal advice that may be customized and adapted to the issues your company is facing.

This service is set up on a quarterly payment basis.  You can receive continual access to an attorney and still stay within a predetermined budget.  Signing up for the Virtual In-House Counsel service will allow you to receive legal advice at a 25% discounted block rate for anything from transactional matters, contract review and drafting, risk management, and litigation strategy.

This flexible approach allows us to combine traditional legal services that keep a business owner’s budget in mind.  It allows you to have an attorney familiar with your business, who is just a phone call or email away.  Our attorneys are well-versed in varied areas of law, including:

- Business transactions,

- Corporate governance,

- Employment law

- Real estate law,

- Lending and collections,

- Insurance issues,

- Litigation, and

- Non-profit law.

If you are interested in learning more about this service and whether it would be a good fit for your small business, please contact us at (408) 369-0800.

Elena Rivkin Franz, attorney and counselor-at-law, is licensed to practice in all California court and the United State District Court of Northern California. During law school, she was a judicial extern for Judge James Ware of the Federal District Court in the San Jose Division.

To lean more about Elena’s specialties of law, please view her profile under attorneys. If you would like to speak with Elena, please call 408-369-0800.

If you would like to speak to one of our attorneys specializing in this area of law, please call us at 408-369-0800 or click on “contact” to send us an email message. We look forward to hearing from you.