The award-winning and respected employment lawyers at Gehres Law Library can provide advice to companies on proper classification of workers. Misclassification — whether by incorrectly classifying employees as independent contractors or by incorrectly classifying workers as exempt when they are entitled to overtime – can be very costly. A recent news release from the State of California Department of Industrial Relations demonstrates the tremendous financial consequences of misclassifying employees.
Citation and Fines for Misclassifying Workers
Employee misclassification results in an estimated $7 billion annually in lost revenue to the state in the form of unpaid payroll taxes. Because of this, misclassification of employees is taken very seriously by the state, and when an employer is found to be in violation, very significant costs and penalties result.
The California Department of Industrial Relations supplies the example of a Jack in the Box franchise operator who was recently fined $903,084 for misclassifying 40 managers as being exempt from overtime pay–and that does not include the attorney’s fees and other costs incurred by this employer, which frequently mount into the six and even seven figures. While many small businesses will have fewer management level employees, this example serves as a warning of the potential costs employers face in California if they do not properly classify their workers under the law.
California law requires non-exempt employees receive time-and-a-half for hours worked over eight per day or over 40 per week. Hours worked over 12 per day entitle non-exempt workers to receive double time. Some employees are exempt from overtime, including those in professional positions, but California law has strict rules for determining who is exempt. Click here for an overview of some of the most common exemptions from overtime.
According to the Department of Industrial Relations, employees at Jack in the Box were incorrectly misclassified as exempt because of the nature of duties performed. Under the appropriate California wage order applied in the case, managers who spend less than 50 percent of their work time on managerial tasks cannot be considered exempt and must be paid overtime. Click here for links to the various wage orders.
Jack in the Box classified 40 workers as exempt managers, even though these workers were performing the same basic duties as other employees at the franchise locations. Because these workers were classified as “managers,” they were forced to work a minimum of 45 hours weekly, without overtime pay for the additional 5 hours. The employer also failed to pay overtime when business needs required them to work in excess of 45 hours per week or 8 hours per day.
Julie A. Su stated in the Department of Industrial Relations’ press release: “For these employees, being misclassified as managers resulted in being paid less than minimum wage. That’s not an acceptable way of doing business in California, and my office will continue to enforce labor laws that uphold that wage floor.”
The Labor Commissioner’s Office took action and issued citations. The citations included $416,783 in unpaid wages for the 40 employees who had been misclassified. Citations also included $218,227 in minimum wage violations and penalties. Waiting time penalties of $98,647 were also assessed for 16 workers who were not paid when their employment concluded, and the franchise operator was also required to pay an additional $169,427 in liquidated damages. As already indicated, these amounts do not include the certainly voluminous legal fees incurred by the business.
Getting Help from an Employment Lawyer
To avoid substantial financial consequences like those imposed on Jack in the Box by the Department of Industrial Relations, know your rights and obligations. Involving an experienced and knowledgeable employment law attorney in decisions concerning classification of workers can save hundreds of thousands of dollars, and even the potential demise of your business, down the road.
The trusted lawyers at Gehres Law Library routinely assist business owners and managers with issues involving the classification of employees and much more. Give us a call at 858-964-2314 or contact us online to discover how we can assist you or your business.