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  • 1. Startup Legal 101: Employment Law Issues May 31, 2011 Palo Alto, CABrian K. Nagatani(bnagatani@hixsonnagatani.com)
  • 2. Overview When will you be covered by California’s employment laws? Appropriate compensation of early hires Appropriate classification of contractors and consultants 2
  • 3. Employment Law Coverage Wage and hour laws: all employers • Minimum wage • Overtime • Meal and rest periods Fair Employment & Housing Act: 5 or more employees • Harassment • Discrimination • Retaliation 3
  • 4. Employment Law Coverage Leaves of Absence • FMLA/CFRA: 50 employees within 75 mile radius • Pregnancy disability leave: 5 or more employees • Other disability leaves: 5 or more employees • Other forms of leave: various coverage thresholds 4
  • 5. Wage and Hour Laws Common Mistakes: • Classifying employees as contractors/consultants • Classifying all employees as exempt • Compensating employees only with stock options • Deferred compensation Potential Exposure: • Class action liability • Four year statute of limitations • Plaintiffs’ attorneys’ fees 5
  • 6. Wage and Hour Laws Recommendations: • Regardless of employer size, ensure that employees are appropriately classified for overtime purposes • Observe all minimum wage, overtime, and meal and rest period requirements for non-exempt employees 6
  • 7. Exemption Test 2 Requirements (Must Satisfy Both) • Salary Test • Duties Test 7
  • 8. “Salary” Requirement Federal: $23,660/year California: $33,280/year • Must Equal or Exceed Monthly Salary for Full-Time Employment at Two Times the California Minimum Wage Generally No Deduction for Missing Time During the Week (Some Exceptions) 8
  • 9. Key Duties Tests Executive Administrative Professional 9
  • 10. The Executive Exemption California “Duties” Requirements • Primarily Engaged in Management of the Enterprise or Recognized Department or Subdivision • Supervises At Least 2 Full Time Employees (or Equivalent) • Authority to Hire or Fire (or Strong Recommendation Authority) • Discretion and Independent Judgment 10
  • 11. The Administrative Exemption California “Duties” Requirements • “Back-Office” Duties o Not “Production” Work • Discretion and Independent Judgment o Distinction: Exercise of Skill • Work Involves Either: o Assisting Owner/Executive o Highly Specialized Technical Tasks, or o Special Projects 11
  • 12. The Professional Exemption Can Cover Employees Performing “Production” Work (Unlike Administrative Exemption) Exempt Professionals Include: • Formally Licensed Professionals (Law, Medicine, Dentistry, Pharmacy, Optometry, Architecture, Engineering, Teaching, or Accounting) 12
  • 13. Computer Professionals:Special Exemption Duties Test: Same as For Computer Workers Under the General Professional Exemption • Excludes entry-level employees, and those who do not primarily exercise independent judgment and discretion. What it Adds: Exception to the Rule that Hourly- Paid Employees Are Non-Exempt • Minimum Pay Rate: $27.63/Hour California Computer Professionals: • $37.94/hour, or • $79,050/year • Caution: the California rate may increase each year! 13
  • 14. Other Commonly Used Exemptions Outside Sales Certain Commissioned Employees 14
  • 15. Important Classification Issues:Employee Versus Contractor Common Mistake: Retaining a Worker as a “Contractor,” But Treating the Worker More Like an Employee. One Misclassification Results in Simultaneous Violation of Numerous Laws 15
  • 16. Why It’s Important Tax ERISA Breach Violation Violation Of Contract Unemployment ADA ONE ViolationViolation MISCLASSIFICATION Workers FMLA Comp Violation FLSA Violation Violation 16
  • 17. The Main Test: “Right to Control” The worker is a contractor only if he/she retains the “right to control the manner and means by which the product is accomplished” Community for Creative Non-Violence v. Reid, 490 U.S. 730 (1989) 17
  • 18. Key Factors Amount of Supervision Discretion Over When/How Long to Work Location of Work Right to Discharge/Quit Duration of Relationship • Is the Contractor a Former Employee? o How Similar is the Work? 18
  • 19. Key Factors Right to Assign Additional Project Method of Payment Skill Required • How Different than Skills Possessed by Employees? Intent of the Parties • Is There a Signed Contractor Agreement? 19
  • 20. Key Factors Is Work Part of Company’s Regular Business? • Do Employees Perform Same Type of Work? Does the Worker Own/Come From a Separate Business? • Does Worker Perform Work for More than One Company? 20
  • 21. Key Factors Is Worker Subject to Risk of Profit or Loss? • Are the Workers’ Expenses Reimbursed? • Who Pays for Assistance? • Source of Instrumentalities/Tools? What Support Does the Company Provide? • E-mail? • Voice Mail? • Business Cards? 21
  • 22. Conclusion Thank You! 22