Are Your Employees’ Exempt Status at Risk After COVID-19?
California employers are wrestling with unprecedented challenges as they start to reopen their doors. In addition to considering capacity requirements, maintaining social distancing, and protecting the health of customers and employees alike, employers are also saddled with the challenge of running afoul of California wage and hour laws in new and unanticipated ways. This may require employers to reevaluate the classification of previously exempt employees.
Staff realignments and reductions are likely to impact the availability of hourly non-exempt employees. This may require employees previously classified as exempt to shoulder those duties and, as a (likely unintended) result, change an employee’s classification. This potential exposure occurs when managers spend “too much time” performing non-exempt work and effectively stop being managers.1 Employers in the hospitality, retail and service sectors should examine their classification models if this “new normal” calls on managers to perform substantially more non-exempt duties.
Exempt status should also be examined when it is based on commissions (i.e., the commissioned sales exemption). Under this exemption, employees must have at least half of their pay derived from commissions – and this could be problematic in light of decreased spending in this COVID-19 economy.
If you believe that there may be a question as to your employee’s classification, you should take special care to ensure that they are paid a minimum hourly rate, and not working more than 8 hours per day or 40 hours per week and implicating overtime requirements. It also requires, at a minimum, more exacting time records, and meal and rest breaks.
What should you not do? Reclassify your employees as independent contractors. The surface appeal is apparent but reclassifying employees as independent contractors presents significant misclassification and litigation risks, particularly in the current climate.2 Not only will an employer face penalties for each violation, but perhaps more importantly, workers misclassified as independent contractors can file wage and hour lawsuits seeking unpaid wages, unpaid overtime, and unpaid meal and rest breaks, as well as penalties, interest, and attorneys’ fees.
We recognize the struggle for employers as they navigate these new challenges on many different fronts. Hall Griffin is here to partner with you during these extraordinary times. For more information or to discuss any of your employment concerns, please contact our employment attorneys at Hall Griffin LLP.
1 To qualify for this managerial exemption in California, the employee must generally spend more than 50% of their work time on exempt duties.
2 Willful misclassification of individuals as independent contractors in California can result in penalties of between $5,000 and $25,000 per violation.