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  1. 1. Startup Legal 101: Employment Law Issues May 31, 2011 Palo Alto, CABrian K. Nagatani(
  2. 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. 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. 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. 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. 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. 7. Exemption Test 2 Requirements (Must Satisfy Both) • Salary Test • Duties Test 7
  8. 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. 9. Key Duties Tests Executive Administrative Professional 9
  10. 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. 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. 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. 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. 14. Other Commonly Used Exemptions Outside Sales Certain Commissioned Employees 14
  15. 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. 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. 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. 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. 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. 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. 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. 22. Conclusion Thank You! 22
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