The Impact of Wage Statement Claims Minimized

Background

In Naranjo v. Spectrum Security Services Inc., the California Supreme Court handed a win to employers when it held that employers may use a good faith defense to defend against claims for penalties under California Labor Code Section 226, the statute governing wage statement requirements. The underlying dispute was a wage and hour class action filed by a former security guard, alleging meal and rest break violations. The lower court ruled in favor of the putative class members by holding that meal and rest breaks must be reported on official time sheets.

The narrow issue before the California Supreme Court was whether employees can recover civil penalties against their employers for “knowingly and intentionally” violating the California wage statement statute, even if they have a good faith belief that they are in compliance. The Court concluded employees may not recover statutory penalties for violations that are not knowing and intentional. In reaching this decision, the Court relied on the notion that civil penalties are designed to deter and punish rather than to compensate. A good faith defense negates that a wage statement violation was “knowing and intentional” as required by the statute.

Significance to Employers

Complying with California’s complex wage statement requirements is no easy task. Adding to the risks for employers, claims for wage statement violations is a popular “add-on” cause of action to wage and hour litigations. This decision imposes a higher burden for plaintiffs seeking to recover penalties by requiring them to show that wage statement errors were done “knowingly and intentionally.” This potentially opens the door for the employers to limit liabilities in cases where Plaintiffs claim they worked off the clock, but never reported the off-the-clock work, and the employers can show that they paid according to the time records. Employers may also consider requiring employees to sign off on their timecards to bolster its good faith defense.

Outside of the litigation context, employers should work with counsel to ensure they are properly issuing wage statements.

Stock Options Are Not Wages Under California Law

Background

In Shah v. Skillz, a California Court of Appeal held that stock options are not wages under the California Labor Code. In Shah, a startup terminated an employee who then brought claims of wrongful termination and retaliation. The startup had an IPO after the former employee’s termination, and he was unable to exercise his stock options they were not available to him after his termination for cause. Disgruntled about the missed opportunity to benefit from the IPO, the former employee filed a lawsuit.

The former employee filed tort claims of retaliation and wrongful termination tort claims. These claims alleged that the company wrongfully terminated and retaliated against him for complaining about his stock options prior to termination. The former employee could only sustain those tort claims if they arose out of a protected activity, namely complaints about unpaid wages. Since the Court concluded stock options are not considered wages, the employee had no basis for those claims because he did not engage in protected activity. In reaching its decision, the Court relied on 9^th Circuit decisions explaining that stock options are not amounts or money, but rather contractual rights to buy shares of stock.

Significance to Employers

This decision significantly limits the universe of wage claims that former employees can bring, particularly startup employees who are often granted stock options in lieu of higher salaries and other compensation. Since stock options are not wages, they cannot serve as the basis for an underlying wage and hour litigation. Further, employee complaints about stock options do not constitute protected activity, foreclosing another way employees may plead retaliation claims against employers. This decision also provides employers with arguments to limit damages even when the plaintiff prevails on other claims, such as wrongful termination.

Beyond litigation, employers should work with counsel to determine whether they should alter their compensation strategies and employment agreements in light of this decision.

If you have questions about defending against wage and hour claims, please contact a member of Kelley Drye’s Labor and Employment team.

The state considers workplace violence to be any act of violence or threat of violence that occurs in a place of employment. However, lawful acts of self-defense or defense of others are not considered as workplace violence.

Workplace violence includes and is not limited to the following: “(i) The threat or use of physical force against an employee that results in, or has a high likelihood of resulting in, injury, psychological trauma, or stress, regardless of whether the employee sustains an injury. (ii) An incident involving a threat or use of a firearm or other dangerous weapon, including the use of common objects as weapons, regardless of whether the employee sustains an injury.”

A threat of violence can be verbal, written, behavioral, or physical conduct that conveys or is reasonably perceived to convey an intent to cause physical harm or instill fear of physical harm, without serving any legitimate purpose. California highlights that employers should consider that threats of violence can be via messages or posts on social media, texts, emails, IMs or any other online content.

The law defines four types of workplace violence based on the perpetrator’s relationship to the workplace and outlines specific required components for the workplace violence prevention plans.

• Type 1 violence - workplace violence committed by a person who has no legitimate business at the worksite, and includes violent acts by anyone who enters the workplace or approaches workers with the intent to commit a crime.
• Type 2 violence - workplace violence directed at employees by customers, clients, patients, students, inmates, or visitors.
• Type 3 violence - workplace violence against an employee by a present or former employee, supervisor, or manager.
• Type 4 violence - workplace violence committed in the workplace by a person who does not work there, but has or is known to have had a personal relationship with an employee.

What does the law require of affected California employers?

• The amendments to the California Labor Code require almost all employers, including contractors, in California to:
• Create a workplace violence prevention plan specific to hazards and corrective measures for each work area and operation
• Create and maintain a violent incident log for every workplace violence incident based on information solicited from employees who experienced the workplace violence, witness statements, and investigation findings. Multiemployer worksites should provide a copy of their own log to the controlling employer
• Train employees when the plan is established and annually going forward
• Provide additional training each time a new or previously unrecognized workplace violence hazard is identified or changes are made to the plan

Who will enforce this new law?

The Division of Occupational Safety and Health (Cal/OSHA) will enforce this new law and must propose standards by December 1, 2025 along with the Occupational Safety and Health Standards board, which must propose its standards by December 31, 2026.

What are the penalties for non-compliance?

This new workplace violence prevention law becomes effective on July 1, 2024 and will apply to virtually all employers in the state. Under certain circumstances, employers who fail to create and implement an effective workplace violence prevention plan or violate the provisions in the law could face a misdemeanor (CA SB 553).

Takeaway

California’s new workplace violence prevention law will require virtually all employers in the state to implement comprehensive plans to prevent, respond to, investigate, and correct workplace violence hazards. By adopting these new standards, California will be the leading state with expanded laws on workplace violence prevention and employee security.

For assistance in navigating the intricacies of compliance with California’s new workplace violence prevention law please contact Kelley Drye’s Labor and Employment attorneys Matthew Luzadder and Judy Juang.